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Rose Oswald PoelsBy Rose Oswald Poels

Every fall, I travel to Washington D.C. with a small group of bankers to visit regulators. During this trip, we nearly always meet with staff from Consumer Financial Protection Bureau (CFPB).

Since CFPB’s inception, we inevitably encourage the CFPB staff during each of these annual visits to focus more on the non-bank financial organizations that operate in the traditional “banking” space. Nearly every time we have this conversation, they nod and share that they provide this type of supervision typically through a complaint-based system. This means that if enough consumers complain about a particular financial organization (not a regulated bank), they will investigate and take whatever action they deem appropriate. Certainly, this has been incredibly frustrating for bankers to hear over the years given that many non-bank actors contributed to the causes of the Great Recession back in 2008 and 2009 and CFPB’s mission is that of protecting consumers. It has been too easy for CFPB to focus on the banking industry through their rulemaking and enforcement authorities since banks are easier to find with traditional brick-and-mortar offices.

I was pleasantly surprised to learn recently, however, that the CFPB has focused some of its attention on the non-bank financial industry by assessing fines to fintech companies for actions that have ultimately harmed consumers. Specifically, CFPB recently levied a $2.7 million fine against lender Hello Digit for a range of issues including misleading marketing claims such as “no overdraft fees.” This claim of no overdraft fees was one of several promises made to consumers by Hello Digit that were, in fact, not always true. Other fintechs have made similar claims regarding no overdraft fees as well, including digital lender Chime, that have turned out to be misleading or only true in a limited set of circumstances.

At the same time, the FDIC recently issued cease and desist orders against five crypto firms for making false or misleading statements suggesting that their digital assets were FDIC-insured. According to the FDIC, each of these companies made false representations on their website and social media accounts stating or suggesting that certain crypto-related products are FDIC-insured or that stocks held in brokerage accounts are FDIC-insured. As we all know, these representations are false and misleading.

There are many fintechs that are working to do the right thing and help improve the financial industry through technological efficiencies, but some reasonable level of regulation and oversight is important for these institutions just like banks. These recent regulatory actions against non-bank financial organizations are good reminders that it is important to continue sharing our concerns with regulatory agencies related to non-bank actors and to continue to stress to our clients and the public how trustworthy banks are.

If you are interested in accompanying me on a future fall regulatory agency trip to D.C., please let me know and I will add you to the list. I try to keep the group small, limited to 12 bankers, to ensure meaningful dialogue with the regulatory agencies. Bankers who have joined me in the past have found this trip to be worthwhile given much of our frustration and burden comes from regulation. In the meantime, WBA will continue to advocate for the members on these and other issues affecting the industry.

Rose Oswald PoelsBy Rose Oswald Poels

Since the enactment of the Dodd-Frank Act in 2010, WBA has assisted members in understanding and implementing countless layers of new federal regulations — some as straight forward as creating and delivering a new one-page notice, others much more complex, including TRID, mortgage servicing rules, and QM/ATR underwriting standards (and those are only the most recent of new laws).

An area of the Dodd-Frank Act that much of the industry has been anxiously awaiting is that of Section 1071. As a reminder, Section 1071 of the Dodd Frank Act amended the Equal Credit Opportunity Act (ECOA) to require that financial institutions collect and report to the Consumer Financial Protection Bureau (CFPB) certain data regarding applications for credit for women-owned businesses, minority-owned businesses, and small businesses.

Having been in this industry for over thirty years, I will say that the forthcoming business data collection and reporting regulation is of the magnitude — both in cost and in operational impact — of what bankers experienced with the implementation of other industry-changing regulations such as the Bank Secrecy Act, Reg CC, or the SAFE Act. I can recall pre-BSA procedures, and now we operate in an implemented BSA world; a time of in-branch check encoding and processing to today’s electronic presentment, centralized clearing, and near live-time processing; and of course, a time when TILA and RESPA were separate disclosures versus today’s mortgage loan application and closing procedures due to TRID rules.

The same will be true after full implementation of a final Section 1071 rule. This law, once finalized, will change how business credit applications are processed. Data will need to be collected and reported as never before. Some members experience similar types of data collection and reporting under the Home Mortgage Disclosure Act (HMDA), but even non-HMDA reporting banks may be required to comply with Section 1071 data collection and reporting.

Based upon recent agency regulatory agenda filings and court filings earlier this month, it is expected that CFPB will finalize its Section 1071 Small Business Lending Data Collection and Reporting Rule by March 2023. Rest assured, I understand the impact this rule will have on the membership. In my comment letter to CFPB regarding its Section 1071 proposal, I advocated for the collection of only those data points required under the Dodd-Frank Act, a higher exemption threshold, and for a longer implementation period to help lessen the impact of the new regulation.

Late last year, WBA prepared a toolkit to help senior management, commercial lenders, loan processors, compliance officers, and others involved with small business lending to better understand the impact of CFPB’s proposal on the bank. Those resources are still available, and I would recommend those in the areas mentioned become familiar with the general concepts of the proposal, understand what could become law, and begin considering the impact on the bank. Planning will be crucial with a regulation as impactful as what Section 1071 will be.

In addition to being vocal during the regulatory process on Section 1071, WBA has advocated for repeal of Section 1071 with our congressional delegation for the last 10 years. Although it is late in the session, I am pleased to share that Rep. Scott Fitzgerald (WI-05) introduced on July 20 the Making the CFPB Accountable to Small Business Act which would repeal Section 1071 of the Dodd-Frank Act. Rest assured, WBA will continue its strong advocacy at all levels to try and reduce this regulatory burden. In the meantime, WBA plans to create further resources once the final rule is released and will help answer questions related to the new regulation.

Current WBA Section 1071 resources may be found on the WBA Compliance Resources webpage.

Triangle Background

Rose Oswald PoelsBy Rose Oswald Poels

As many would know, I started my career at WBA answering compliance questions for members through WBA’s Legal Call Program and a frequently asked question has long been, “May a bank pull a credit report on a non-applicant spouse when a married Wisconsin resident applies for credit individually?” WBA’s longstanding answer has been yes. Banks have a permissible purpose under the Fair Credit Reporting Act (FCRA) to pull credit on the non-applicant spouse when an applicant is a married Wisconsin resident. Under Wisconsin’s Marital Property Act (MPA), the creditor should consider the couple a unit, taking into consideration all income and all debt of both spouses.

The Bureau of Consumer Financial Protection (CFPB) recently issued an advisory opinion regarding permissible uses of credit reports. The opinion appears to be primarily directed at consumer reporting agencies who furnish credit reports. However, given statements within the opinion regarding use of credit reports, I believe it worth a reminder about how the MPA plays a role in there being a legitimate business need for a bank to pull a credit report on a non-applicant spouse when a married Wisconsin resident applies for credit individually, as CFPB failed to take into considerations a state’s property laws when it analyzed permissible purposes under FCRA Section 604.

Under the MPA, when credit will result in an obligation that is “in the interest of marriage or the family” pursuant to sec. 766.56(1), Stats., creditors need to consider both the assets and liabilities of each spouse when evaluating an applicant spouse’s creditworthiness. By reviewing both the assets and liabilities of each spouse, the creditor can meet its obligations under s. 766.56(1) to consider “all marital property available to satisfy the obligation in the same manner that the creditor, in evaluating the creditworthiness of an unmarried credit applicant, considers the property of an unmarried credit applicant…” Credit reports are the tools most often used to determine liabilities of both spouses.

The Federal Trade Commission (FTC), the agency with authority for banks regarding FCRA prior to the Dodd-Frank Act, recognized states’ property laws under its interpretation of FCRA permissible purposes. To use a credit report, the FCRA provides that one must have a permissible purpose for the report. FCRA Section 604 sets forth the permissible purposes of credit reports. Section 604(a)(3)(A) allows a consumer reporting agency to furnish consumer reports to a person which it has a reason to believe “intends to use the information in connection with a credit transaction involving the consumer on whom the information is to be furnished and involving the extension of credit to, or review or collection of an account of, the consumer.” Past FTC interpretation of this section has confirmed that creditors may pull a credit report on a non-applicant spouse.

In particular, FTC interpretation of FCRA Section 604(a)(3)(A) has been,

“A creditor has a permissible purpose to obtain a consumer report on an applicant’s spouse if that spouse will be permitted to use the account or will be contractually liable upon the account, or if the applicant is relying on the spouse’s income as a basis for repayment of the credit requested. In addition, a creditor may obtain a consumer report on an applicant’s spouse if (i) the state law doctrine of necessaires (which may make a consumer liable for certain debts of a spouse) applies to the transaction, (ii) the applicant resides in a community property state, (iii) the property upon which the applicant is relying as a basis for repayment of the credit requested is located in such a state, or (iv) the applicant is acting as the agent of the nonapplicant spouse.”

The requirements under the MPA and FTC’s interpretation of a permissible purpose under the FCRA were the areas of law WBA has cited as rationale why banks may use the consumer reports of both the married Wisconsin resident applicant and his/her non-applicant spouse when determined debt in connection with new credit or review of an account.

However, with CFPB having issued an advisory opinion regarding the furnishing and use of credit reports under the FCRA, members need be aware of the opinion.

In its opinion, CFPB stated that the permissible purposes listed in FCRA section 604(a)(3) are consumer specific and that a consumer reporting agency may not provide a consumer report to a user under FCRA section 604(a)(3) unless it has reason to believe that all of the consumer report information included pertains to the consumer who is the subject of the user’s request. CFPB believes section 604 analysis need be on a consumer-by-consumer basis, intending the use of information in connection with a credit transaction to be one involving the consumer on whom the information is to be furnished and involving the extension of credit to, or review or collection of an account of, the consumer.

CFPB’s new advisory opinion could be read to not allow a credit report to be pulled on a non-applicant spouse as the non-applicant spouse is not party to the application. In writing this opinion, CFPB has failed to consider a state’s property law — such as the Wisconsin MPA — and of the legitimate business need for debt information. Separately, a creditor cannot require spouses to apply together to then obtain a credit report on both spouse as that would be a violation of Regulation B. CFPB’s focus only on federal law when writing this advisory opinion without considering state marital property laws raises a question for banks in marital/community property states, including Wisconsin banks when trying to comply with s. 766.56(1) Stats.

WBA believes banks do have a permissible purpose under state law, and therefore under FCRA section 604, to obtain a credit report of a non-applicant spouse in connection with an application involving a married Wisconsin resident, since CFPB’s advisory opinion focuses solely on the fact that FCRA permissible purposes are consumer-specific and is silent on any relevant state law.

It is clear under s. 766.56(1), Stats. that when credit will result in an obligation, that is “in the interest of marriage or the family,” creditors need to consider both the assets and liabilities of each spouse when evaluating an applicant spouse’s creditworthiness. This requirement results in a legitimate business need to identify debts of both the applicant spouse and non-applicant spouse. Furthermore, pursuant to s. 766.55(1), Stats., an obligation incurred while married is presumed to be incurred in the interest of the marriage or family, and under para. (2) the obligation is to be satisfied from all marital property and all other property of the married Wisconsin resident applicant. These MPA provisions make the non-applicant spouse part of the credit transaction and resulting obligation for which a credit report is being used thereby meeting the conditions under CFPB’s advisory opinion despite CFPB not specifically addressing marital property interests.

Due to the requirements of ss. 766.55 and 766.56, Stats., banks have a permissible purpose under FCRA section 604(a)(3) to use a consumer report of a non-applicant spouse when an applicant is a married Wisconsin resident. A bank’s current practice to pull a credit report on both spouses need not change as a result of CFPB’s advisory opinion.

While CFPB’s release is only that of an advisory opinion, and is not regulation, I want to make sure that members are aware of the opinion and its narrowness, along with WBA’s thoughts on it.

June 1, 2021–May 31, 2022

This year, attorneys Heather MacKinnon, Scott Birrenkott, and President/CEO Rose Oswald Poels submitted 16 comment letters in response to requests for comment on rulemaking affecting the banking industry.

Through this process, the WBA Legal Team was able to advocate on behalf of all WBA members for the betterment of the banking industry. From digital assets to examinations and fees, comment letters are a great opportunity for members of the banking industry to inform agencies about the impact of rulemaking and provide examples.

As part of the rulemaking process within the Administrative Procedure Act (APA), all agencies are required to allow the public an opportunity to comment on proposed rules for a prescribed period (minimally 30 days). All WBA members are encouraged to share their comments with federal and state agencies as requested. Information regarding comment letters, or WBA-created letter templates — when available — are typically shared with the membership in the Wisconsin Banker Daily. Additional rulemaking developments at the federal level are compiled in the monthly WBA Compliance Journal.

Once the public has commented, each agency must determine how to proceed given the feedback received. This year, the WBA Legal Team addressed five federal agencies and further helped inform said agencies on the impact of their proposed rulemaking.

Six Comment Letters Filed with the FDIC

Over the past year, WBA filed six comment letters with Federal Deposit Insurance Corporation (FDIC). Two of WBA’s letters commented on FDIC’s actions regarding examinations. In the first, WBA commented on the FDIC’s proposed hybrid approach to bank examinations and in the second, WBA commented on the post-examination surveys related to FDIC Safety and Soundness and Consumer Compliance examinations. In each letter, WBA emphasized the importance of the FDIC establishing consistent coordination and communication with banks.

Three Comment Letters Filed with the CFPB

WBA wrote three letters this year to the Consumer Financial Protection Bureau (CFPB). Most recently, WBA responded to CFPB’s concerns regarding products which feature “junk fees,” assuring CFPB that the Wisconsin financial services marketplace is competitive, featuring a diverse range of high-quality, convenient, innovative, and competitively priced products and services. Additionally, WBA highlighted that, despite CFPB’s concerns, the market is highly regulated, and that further rulemaking is unnecessary as fees are already subject to disclosure requirements.

Four Comment Letters Filed with the FRB

This year, WBA also filed four comment letters with Board of Governors of the Federal Reserve System (FRB). In one of the letters, WBA addressed FRB’s request for comment regarding the evaluation of account and services requests. WBA acknowledged FRB’s attempt to create consistency, but ultimately expressed concern with allowing access to the payment system by entities with little or no regulatory oversight, lack of protection, and minimal capital and liquidity requirements, among others. WBA proposed that FRB establish standards or requirements for users, maintain ongoing review of those involved, as well as coordinate an FRB-led evaluation committee.

One Comment Letter Filed with the HUD

In late May, WBA expressed support of the Department of Housing and Urban Development’s (HUD) proposal to extend a term for loan modifications. The modification would allow mortgagees to modify Federal Housing Administration (FHA) insured mortgage loans by recasting the total unpaid amount due for a new term limit of 480 months — an increase from a term limit of 360 months; allow FHA-loan borrowers similar flexibility and benefits as is available for Fannie-/Freddie-loan borrowers; and  creates yet another tool for Wisconsin’s financial institutions to use in their continued work to help find solutions for struggling borrowers to retain their homes.

One Comment Letter Filed with the OCC

In a letter filed with the Office of the Comptroller of the Currency (OCC), WBA was able to comment on a final rule to adopt a new Community Reinvestment Act (CRA) framework. This regulation facilitated the issuance of joint CRA to an interagency basis which would allow for greater coordination on all CRA ruling between the OCC, FRB, and FDIC for the benefit of banks serving low- and moderate-income communities.

One Interagency Comment Letter Filed

Some rulemakings are issued on an interagency basis. This year, WBA commented on the FRB, FDIC, and OCC’s proposed interagency guidance on third-party relationships related to risk management. In the letter, WBA commented that this effort would promote consistency in their guidance as well as clearly articulate risk-based principles. In addition, WBA identified several ways Wisconsin banks will be impacted by the new guidance during final implementation.

Conclusion

Industry comment is a critical aspect to the rulemaking process. It is an opportunity for the industry’s voice to be heard, and it is important that the agencies hear from banks about how rulemaking affects you. WBA welcomes feedback on comment letters because it is key that we, and the agencies, hear directly from members.

For more information on the rulemaking process, comments, and upcoming rules, contact the WBA Legal Department at wbalegal@wisbank.com. For a full list of the comment letters filed during the 2021–22 fiscal year, visit www.wisbank.com/advocacy/comment-letter-library.

*This article has been updated from previous published editions

With the mandatory compliance date for the new, revised General QM loan definition just on the horizon, banks should ensure their implementation plans are in place. In terms of a quick-look at dates, CFPB issued a final rule on December 29, 2020 (Final Rule) which amends the General QM loan definition in Regulation Z. The Final Rule included a mandatory compliance date of July 1, 2021. However, on April 27, 2021, CFPB extended that mandatory compliance date to October 1, 2022. The General QM Final Rule was effective on March 1, 2021 and, among other things, replaces the existing 43 percent debt-to-income ratio limit with price-based thresholds. As such, it presents the potential for significant changes to a bank’s mortgage lending operation.

To expand upon the new price-based thresholds with a general summary: a loan meets the revised General QM definition only if the annual percentage rate exceeds the average prime offer rate for a comparable transaction by less than the applicable threshold set forth in the Final Rule as of the date the interest rate is set. Additionally, the Final Rule removes Appendix Q as well as any requirements to use Appendix Q for General QM loans. Consequently, it amends the consider and verify requirements in Regulation Z and its associated commentary. First, it outlines the minimum considerations required by creditors, including, for example, the consumer’s current or reasonably expected income or assets. Second, it requires that creditors verify those considerations using reasonably reliable third-party records and reasonable methods and criteria.

Banks have likely already taken time to evaluate the categories of QMs they originate, and how the revised General QM definition may or may not affect its current loan policy and underwriting procedures. Even banks which originate Small Creditor QMs should still consider the extent to which they may or may not original General QMs. For example, does bank originate General QMs? Will it continue to do so, or will it exclusively utilize the Small Creditor QM exception, if applicable?

Given the mandatory compliance date of October 1, 2022 banks should confirm that their implementation steps are in place. Banks should prepare to fully transition current policies and procedures to conform with the new definition and consider what training might be necessary in advance of and after the transition.

As an additional resource, WBA has prepared an ATR/QM Toolkit to assist bankers.

Earlier this year the CFPB issued its long-awaited proposal for implementing Section 1071 of the Dodd-Frank Act, which requires collection of credit application data for small businesses, including women-owned and minority-owned small businesses. Comments on the proposal are due January 6, 2022. WBA will be creating a draft comment letter for use by members to reply to CFPB regarding concerns and impact of the proposal on banks. WBA encourages each bank to consider submitting its own letter reflecting bank-specific information. In preparation for these comments, WBA has prepared the following considerations regarding the rule.

What specific burdens will your institution face as a result the proposal? Some examples might include:

  • Costs, technology, training, staffing, customer-facing educational information needs.
  • Review of application process (based upon the rule’s definition of application).
  • Is the proposed “firewall” process workable for the bank?
  • What sort of implementation period will be necessary?

More specifically you might consider:

  • Will bank need to hire new staff (compliance, processor, etc.)?
  • Technology costs, such as a new platform, or 1071 data software.
  • Costs associated with updating existing systems, testing, applications, training, development of new policies and procedures, legal consultation, review of implementation, etc.
  • New annual costs related to collection such as customer service, data management, resolution of errors, exam prep, etc.

In preparation for filing comments, banks should plan to provide specific estimates where possible. For example, if bank predicts new software will be necessary to capture the data, be prepared to provide CFPB with a specific cost if possible.

As mentioned above, WBA will be creating a draft comment letter for use by members to reply to CFPB. The letter will be released shortly to allow banks time to personalize their letter with bank-specific information. For more information about CFPB’s Section 1071 proposal, please see the WBA Toolkit and PowerPoint materials.

WBA Legal has prepared a new toolkit to help senior management, commercial lenders, loan processors, compliance officers, and others involved with small business lending to better understand the impact of CFPB’s recently proposed small business rule on the bank. Once finalized, the requirement to collect and report certain data about small business credit applicants will have a dramatic impact on current application and processing operations and record retention.  

A PowerPoint summarizing CFPB’s proposed rule has been created for use by staff who seek to present the main components of the proposal to lending and processing staff. The PowerPoint provides a background, proposed compliance dates, information regarding covered financial institutions, definition of small business, minority-owned and women-owned business, definition of covered application and covered credit transaction, what data must be collected, and reporting information.  

In addition to the PowerPoint, the toolkit also includes a complete outline of the proposed rule, including the proposed commentary and several appendices. CFPB’s proposed rule summary and a data point chart are also included.  

CFPB is accepting comments regarding its proposal. WBA hopes each bank will take into consideration the information provided in this toolkit, assess the proposal’s impact on the bank, and provide comment to CFPB regarding such impact.  

WBA Legal will be creating a draft comment letter for use by members to reply to CFPB regarding concerns and impact of the proposal on banks. WBA encourages each bank to consider submitting its own letter reflecting bank-specific information.  

Feel free to contact WBA Legal at wbalegal@wisbank.com regarding CFPB’s proposal.

Rose Oswald PoelsBy Rose Oswald Poels

Last week for the first time in two years, I was back in Washington D.C. with a small group of nine bankers from Wisconsin for meetings with banking regulators and a few members of Congress. Joining WBA was a delegation of six bankers and two staff from the Illinois Bankers Association. While our meetings with regulators were still virtual, all meetings were productive affording the smaller group of bankers ample time to ask questions and hear directly from senior officials about a wide variety of issues.

We began the first day in the afternoon with briefings from the FDIC and OCC. FDIC Board Director Martin Gruenberg led the conversation highlighting the fact that while the FDIC anticipated stress in the banking system heading into the pandemic that did not materialize and notably, there have not been any bank failures in 2021. Areas of focus for the FDIC remain on commercial real estate, tailoring climate change risk concerns based on the impact to different markets and/or the size of the institution, and on the impact of non-bank companies to the financial system. OCC Acting Director Michael Hsu led the discussion with bankers emphasizing his support for community banks, his understanding of the need to tailor regulation to the size and complexity of each institution, and robust discussions around both FinTechs and climate change.

The next day featured conversations with FinCEN and CFPB. Naturally, the discussion with FinCEN was largely around the status of their development of a beneficial ownership registry which remains in process. Until one is finally launched, banks will still have to follow the current beneficial ownership rules. A representative from FinCEN’s Financial Intelligence Division indicated that they have seen an increase in all types of crime notably COVID-19 fraud, work at home scams, cyberthreats of all types (e.g. ransomware and account takeovers), and illicit use of cryptocurrency. The primary focus of our conversation and questions with the CFPB was around the upcoming Section 1071, small business data collection proposal. The bankers took turns stressing the hardships of the current proposal and asking for an extension of the comment period deadline so that the industry had adequate time to respond to the many issues raised in the over 900-page document. CFPB staff indicated that they have been in meetings with the core providers on this proposal already to help prep them ahead of time so that data collection would be easier once the proposal is finalized.

These meetings are impactful largely due to the proactive engagement of the bankers in the room. I encourage you to take advantage of these opportunities as they arise and be involved because each regulator we met with unequivocally stated they want to hear directly from bankers about the impact proposals have on their operations. While WBA certainly represents the industry’s concerns, bankers truly make the best advocates in sharing specific examples about the impact on the operations of individual banks.

The long awaited proposed rule regarding the collection and reporting of small business lending data as required by Section 1071 of the Dodd-Frank Act has finally been released by the Bureau of Consumer Financial Protection (CFPB). Unfortunately, the proposed rule is as broad and onerous as the industry expected it to be as it will be costly to train, implement, and monitor. The proposal would revise Regulation B, which implements the Equal Credit Opportunity Act (ECOA), to require the collection and reporting to CFPB certain data on applications for credit by small businesses. The proposal is substantial; however, below is a brief summary of the proposed rule.

Who Must Collect Data

The first step of analysis for any proposal is to identify whether it will apply to the bank. In this case, the proposal is broad and will very likely apply to all banks in Wisconsin. As proposed, if a bank originates at least 25 credit transactions that are considered “covered credit transactions” to “small businesses” in each of the two preceding years, the proposed rule will apply to the bank. Generally, a “small business” under the proposal is a business that had $5 million or less in gross annual revenue for its preceding fiscal year.

What CFPB has proposed be considered a “covered credit transaction” is a bit trickier an analysis but is generally the same as what is considered an application under the existing Regulation B definition of “application.” The proposed term does; however, exclude reevaluation requests, extension requests, or renewal requests on an existing business credit account, unless the request seeks additional credit amounts; also excluded is an inquiry or prequalification request.

What Data is to be Collected

Next, the data to be collected. Dodd-Frank Act Section 1071 identified certain data that must be collected by CFPB; the law also gave CFPB discretion to collect additional data. CFPB has incorporated all Dodd-Frank Act required data and several discretional data into its proposal. In particular, banks must collect a unique identifier of each application, application date, application method, application recipient, action taken by bank on the application, date action taken, denial reasons, amount applied for, amount originated or approved, and pricing information including interest rate, total origination charges, broker fees, initial annual charges, additional cost for merchant cash advances or other sales-based financing, and prepayment penalties.

Banks must also collect credit type, credit purpose, information related to the applicant’s business such as census tract, NAICS code and gross annual revenue for applicant’s preceding fiscal year, number of applicant’s non-owner workers, applicant’s time in business, and number of applicant’s principal owners.

There is also demographic information about the applicant’s principal owners to collect. These data points include minority- and women-owned business status, and the ethnicity, race, and sex of the applicant’s principal owners. The proposal also requires banks to maintain procedures to collect applicant-provided data at a time and in a manner that is reasonably designed to obtain a response, addresses how banks are to report certain data if data are not obtainable from an applicant, when banks are permitted to rely on statements made by an applicant, when banks must verify applicant’s responses to certain data collected, and when banks may reuse certain data collected in certain circumstances such as when data was collected within the same calendar year as a current covered application and when the bank has no reason to believe the data are inaccurate.

When and How Data Must be Reported

Banks would be required to collect data on a calendar-year basis and report the data to CFPB by June 1 of the following year. CFPB has proposed to provide technical instructions for the submission of data in a Filing Instructions Guide and related materials.

The submitted data is also to be made available to the public on an annual basis. Banks would be required to make the reported data available on their website, or otherwise upon request, or must provide a statement that the bank’s small business lending application register is available on CFPB’s website. Model language for such statement has been proposed by CFPB.

Limit of Certain Bank Personnel’s Access to Certain Data

The proposed rule implements a requirement under Section 1071 that banks limit certain employees’ and officers’ access to certain data. CFPB refers to this as the “firewall.” Pursuant to the proposed rule, an employee or officer of a bank or bank’s affiliate who are involved in making any determination concerning the applicant’s covered application would be prohibited from accessing an applicant’s responses to inquiries that the bank made regarding whether the applicant is a minority- or woman-owned business. Such employees are also restricted from information about an applicant’s ethnicity, race, and sex of the applicant’s principal owners.

There are exceptions to the requirement if it is not feasible to limit such access, as that factor is further set forth in the proposal. If an exception is permissible under the proposal, notice must be given to the application regarding such access. Again, CFPB has created model language for such notice.

Recordkeeping and Enforcement

The proposal establishes certain recordkeeping requirements, including a three year retention period for small business lending application registers. The proposal also includes a requirement to maintain an applicant’s responses to Section 1071 inquiries regarding whether an applicant is a minority- or women-owned business, and responses regarding the ethnicity, race, and sex of the applicant’s principal owners, separate from the rest of the application and accompanying information.

The proposal does include enforcement for violations of the new rules, addresses bona fide errors, and provides for a safe harbor.

Learn More and Get Involved

The proposal and additional information, including a chart of the proposed data collection points, may be viewed at: https://www.consumerfinance.gov/rules-policy/rules-under-development/small-businesslending-data-collection-under-equal-credit-opportunity-act-regulation-b/

WBA will comment on the proposal and will create a template letter for bankers to use in providing their own comments to CFPB regarding the impact the proposal will have on the bank. Comments are due 90 days from publication of the proposed rule in the Federal Register. At time of publication of the article, the proposal had not yet been published. CFPB has proposed mandatory compliance of a final rule be eighteen months after its effective date. WBA Legal is creating a working group to collect data and concerns from Wisconsin’s bankers on the proposal. If you wish to be part of the working group, please contact WBA Legal at wbalegal@wisbank.com.

This article originally ran in the September 2021 edition of the WBA Compliance Journal, to view the entire publication, click here.

This is the Special Focus section of the September 2020 edition of Compliance Journal, click here to view the entire edition.

The Bureau of Consumer Financial Protection (CFPB) has proposed the creation of a new category of qualified mortgages (QM) named Seasoned QM.  

As a general matter, the Ability-to-Repay/Qualified Mortgage Rule (ATR Rule) requires a creditor to make a reasonable, good faith determination of a consumer’s ability to repay a residential mortgage loan according to its terms. Loans that meet the ATR Rule requirements for QMs obtain certain protections from liability. CFPB stated it created the Seasoned QM category to complement existing QM definitions and to help ensure access to responsible, affordable mortgage credit—especially given the upcoming sunset of the temporary GSE QM category. CFPB also stated it seeks to encourage safe and responsible innovation in the mortgage origination market, including for certain loans that are not QMs or are only rebuttable presumption QMs under existing QM categories. 

Under the proposed rule, a covered transaction would receive a safe harbor from ATR liability at the end of a 36-month seasoning period as a Seasoned QM if it satisfies certain product restrictions, points-and-fees limits, and underwriting requirements. The following is an overview of the restrictions and requirements of the proposed Seasoned QM. 

Product Restrictions and Underwriting Requirements 

A covered transaction must meet the following product restrictions to be eligible to become a Seasoned QM: 

  1. The loan is secured by a first lien; 
  2. The loan has a fixed rate, with fully amortizing payments, and no balloon payment; 
  3. The loan term does not exceed 30 years; and 
  4. The total points and fees do not exceed 3 percent of the loan amount.  

For a loan to be eligible to become a Seasoned QM, the proposal requires that the bank consider the consumer’s debt-to-income (DTI) ratio or residual income and verify the consumer’s debt obligations and income. Similar to the existing Small Creditor QM category, the proposal does not specify a DTI limit. Additionally, the bank is not required to use Appendix Q to Regulation Z in calculating and verifying debt and income. The proposed commentary provides that a loan that complies with the consider and verify requirements of any other QM definition is deemed to comply with the consider and verify requirements of the Seasoned QM.  

Portfolio Requirement 

The proposed rule also sets forth a portfolio requirement for the new category. To be a Seasoned QM, the covered transaction cannot be subject, at consummation, to a commitment to be acquired by another person; and, legal title to the covered transaction cannot be sold, assigned, or otherwise transferred to another person before the end of the seasoning period. The proposal provides for two exemptions from this portfolio requirement in that the covered transaction may be sold, assigned, or otherwise transferred to another person pursuant to a capital restoration plan or prompt correction action, other action or instruction from a person acting as conservator, receiver, or bankruptcy trustee, or an order of the bank’s state or federal regulator. The covered transaction may also be sold, assigned, or otherwise transferred pursuant to a merger or acquisition of the bank with another person. 

The exemptions to the portfolio requirement apply not only to an initial sale, assignment, or other transfer by the originating creditor, but to subsequent sales, assignments, and other transfers as well. For example, assume Bank A originates a covered transaction that is not a QM at origination. Six months after consummation, the covered transaction is transferred to Bank B pursuant to merger of the two banks. The transfer does not violate the portfolio requirements of the proposed rule because the transfer is as a result of a merger. If Bank B sells the covered transaction before the end of the seasoning period, the covered transaction is not eligible to season into a QM under the Seasoned QM rules unless the sale falls within one of the two listed exemptions.  

As outlined, a covered transaction sold pursuant to a capital restoration plan under a prompt corrective action before the end of the seasoning period does not violate the proposed rule’s portfolio requirements. However, if the bank simply chose to sell the same covered transaction as one way to comply with general regulatory capital requirements in the absence of supervisory action or agreement, then the covered transaction cannot become a QM as a Seasoned QM, though it could qualify under another definition of QM.  

Seasoning Period 

The “seasoning period” means a period of 36 months beginning on the date on which the first periodic payment is due after consummation of the covered transaction, except that if there is a delinquency of 30-days or more at the end of the 36th month of the seasoning period, the seasoning period does not end until there is no delinquency. The seasoning period also does not include any period during which the consumer is in a temporary payment accommodation extended in connection with a disaster or pandemic-related national emergency, provided that during or at the end of the temporary payment accommodation there is a qualifying change or the customer cures the loan’s delinquency under its original terms.  

If during or at the end of the temporary payment accommodation in connection with a disaster or pandemic-related national emergency there is a qualifying change or the consumer cures the loan’s delinquency under its original terms, the seasoning period consists of the period from the date on which the first periodic payment was due after consummation of the covered transaction to the beginning of the temporary payment accommodation and an additional period immediately after the temporary payment accommodation ends, which together must equal at least 36 months.  

The proposed rule defines a “qualifying change” to mean an agreement that: (a) is entered into during or after a temporary payment accommodation in connection with a disaster or pandemic-related national emergency and must end any pre-existing delinquency on the loan obligation when the agreement takes effect; (b) the amount of interest charged over the full term of the loan does not increase as a result of the agreement; (c) there is no fee charged in connection with the agreement; and (d) all existing late fees, penalties, stop payment fees, or similar charges are promptly waived upon the consumer’s acceptance of the agreement.  

A “temporary payment accommodation in connection with a disaster or pandemic-related national emergency” is defined to mean temporary payment relief granted to a consumer due to financial hardship caused directly or indirectly by a presidentially declared emergency or major disaster under the Robert T. Stafford Disaster Relief and Emergency Assistance Act or a presidentially declared pandemic-related national emergency under the National Emergencies Act. Examples of temporary payment accommodations in connection with a disaster or pandemic-related national emergency include, but are not limited to, a trial loan modification plan, a temporary payment forbearance program, or a temporary repayment plan.  

Consumer Payment Performance Requirements 

The proposed rule also requires certain payment performances by the consumer. To be a Seasoned QM, the covered transaction must have no more than two delinquencies of 30 or more days and no delinquencies of 60 or more days at the end of the seasoning period. “Delinquency” is defined in the proposed rule to mean the failure to make a periodic payment (in one full payment or in two or more partial payments) sufficient to cover principal, interest, and, if applicable, escrow by the date the periodic payment is due under the terms of the legal obligation. Other amounts, such as any late fees, are not considered for this purpose. The “due date” is the date the payment is due under the terms of the legal obligation, without regard to whether the consumer is afforded a period after the due date to pay before being accessed a late fee.  

Further, a periodic payment is 30 days delinquent when it is not paid before the due date of the following scheduled periodic payment. A periodic payment is 60 days delinquent if the consumer is more than 30 days delinquent on the first of two sequential scheduled periodic payments and does not make both sequential scheduled payments before the due date of the next scheduled periodic payment after the two sequential scheduled periodic payments. For example, assume a loan is consummated on October 15, 2022, that the consumer’s periodic payment is due on the 1st of each month, and that the consumer timely made the first periodic payment due on December 1, 2022. For purposes of determining delinquency under the proposed rule, the consumer is 30 days delinquent if the consumer fails to make a payment (sufficient to cover the scheduled January 1, 2023 periodic payment of principal, interest, and, if applicable, escrow) before February 1, 2023. The consumer is 60 days delinquent if the consumer then fails to make two payments (sufficient to cover the scheduled January 1, 2023 and February 1, 2023 periodic payments of principal, interest, and, if applicable, escrow) before March 1, 2023.  

For any given billing cycle for which a consumer’s payment is less than the periodic payment due, a consumer is not delinquent as defined in the proposed rule if: (a) the servicer chooses not to treat the payment as delinquent for purposes of RESPA, Regulation X, if applicable; (b) the payment is deficient by $50 or less; and (c) there are not more than three such deficient payments treated as not delinquent during the seasoning period.  

Conclusion  

CFPB has proposed the creation of a Seasoned QM category as means to complement existing QM definitions and to help ensure access to responsible, affordable mortgage credit. A covered transaction would receive a safe harbor from ATR liability at the end of a 36-month seasoning period as a Seasoned QM if it satisfies certain product restrictions, points-and-fees limits, and underwriting requirements as outlined above.  

CFPB has proposed that a final rule relating to the proposal would take effect on the same date as a final rule to amend the General QM definition. Comments regarding the proposed Seasoned QM category were initially due September 28, 2020; however, CFPB has
since extended the comment period until October 1, 2020. WBA plans to file comments in general support of the proposal while offering several recommendations of change for CFPB to consider. Click here to view the proposal.

By, Ally Bates

Events

Do you know the most important consumer lending laws and regulations? This webinar will provide a thorough analysis of the most important federal consumer lending laws and related CFPB regulations. (Part of the 2022 Consumer Lending Series)

After This Webinar You’ll Be Able To:

  • Explain the required lending terms that must be disclosed to consumers
  • Distinguish the triggering terms used in advertising to consumers
  • Identify unlawful discrimination in consumer lending
  • Understand the duty of privacy owed by the lending institution to its consumer borrowers
  • Define what is an unfair, deceptive, or abusive act or practice as determined by the CFPB

Webinar Details
This webinar will provide comprehensive training on consumer lending regulations, including the Truth in Lending Act, Equal Credit Opportunity Act and fair lending, Fair Credit Reporting Act, Servicemembers Civil Relief Act, Military Lending Act, Gramm-Leach-Bliley Act and privacy policies, and the regulations prohibiting unfair, deceptive, and abusive acts and practices. Learn everything that examiners expect your staff to know regarding consumer lending regulations and how these regulations should work together in your financial institution.

Who Should Attend?
This informative session is useful for any personnel involved in the consumer credit process including loan operations personnel, loan officers, underwriting personnel, compliance personnel, auditors, attorneys, and managers.

Take-Away Toolkit

  • CFPB Fair Lending Report (May 2022)
  • CFPB Consumer Laws & Regulations – TILA
  • CFPB Consumer Laws & Regulations – UDAAP
  • CFPB Consumer Laws & Regulations – GLBA privacy
  • Employee training log
  • Interactive quiz
  • PDF of slides and speaker’s contact info for follow-up questions
  • Attendance certificate provided to self-report CE credits

NOTE: All materials are subject to copyright. Transmission, retransmission, or republishing of any webinar to other institutions or those not employed by your agency is prohibited. Print materials may be copied for eligible participants only.

Presenter Bio

Elizabeth Fast JD, CPA – Spencer Fane LLP
Elizabeth Fast is a partner with Spencer Fane Britt & Browne LLP where she specializes in the representation of financial institutions. Fast is the head of the firm’s training division. She received her law degree from the University of Kansas and her undergraduate degree from Pittsburg State University. In addition, she has a Master of Business Administration degree and she is a Certified Public Accountant. Before joining Spencer Fane, she was General Counsel, Senior Vice President, and Corporate Secretary of a $9 billion bank with more than 130 branches, where she managed all legal, regulatory, and compliance functions.

Registration Options

  • $245 – Live Webinar Access
  • $245 – OnDemand Access + Digital Download
  • $350 – Both Live & On-Demand Access + Digital Download

During our second-quarter update, we will look at the changing landscape of the deposit area and all the hot spots for compliance. This is a look-see at what has passed and what is to come. Learn more in this incredible catch-all program for those of you on the deposit side of the compliance and operations area.

Covered Topics

  • FDIC Insurance Changes on Trusts
  • CFPB released on March 16th a statement that discrimination issues could apply to trusts
  • FDIC Supervisory Highlights focus on Regulation E yet again—Flexible OD Programs
  • Hot Spots on Regulation E continue
  • Beneficial Ownership proposed changes
  • Proposed IRA Changes pass the House—calling it Secure Act 2.0
  • OFAC and Ukraine what you need to know and do

Who Should Attend
Deposit Compliance, Deposit Operations, Training, Branch Staff, and Senior Management.

Instructor Bio
Deborah Crawford is the president of Gettechnical Inc., a Virginia based training company. She specializes in the deposit side of the financial institution and is an instructor on IRAs, BSA, Deposit Regulations and opening account procedures. She was formerly with Hibernia National Bank (now Capital One) and has bachelor’s and master’s degrees from Louisiana State University. She has 30+ years of combined teaching and banking experience.

Registration Options
Live Access, 30 Days OnDemand Playback, Presenter Materials and Handouts $279

Available Upgrades:
12 Months OnDemand Playback + $110
12 Months OnDemand Playback + CD + $140
Additional Live Access + $75 per person

 

Regulators are reviving their focus on fair lending and have published new materials and related guidance. It is critical that your institution is using these resources to update your fair lending compliance management system. These topics and more have been the subject of recent agency-issued blogs, press releases, webinars, speeches, and enforcement actions. Are they receiving adequate attention at your financial institution, too?

AFTER THIS WEBINAR YOU’LL BE ABLE TO:

  • Use current agency guidance to enhance your fair lending compliance management system
  • Assist consumers with limited English proficiency
  •  Explain sex-based discrimination
  • Discuss appraisal discrimination
  • Understand the components of the new Combatting Redlining Initiative
  • Describe redlining actions that resulted in enforcement actions

WEBINAR DETAILS
The regulatory agencies are renewing their emphasis on fair lending. This webinar will dive into the recent agency-issued fair lending materials, including the Fair Lending Report of the Bureau of Consumer Financial Protection, to ensure you have the most up-to-date resources and training materials. The Bureau’s annual risk-based prioritization process involves combining emerging developments and trends with tips and leads from industry whistleblowers, advocacy groups, and government agencies; supervisory and enforcement history; consumer complaints; and results of HMDA analysis and other data.

Based on these documents, this webinar will cover redlining, appraisal discrimination, special purpose credit programs, sex-based discrimination, and consumers with limited English proficiency — all of which should be addressed in your institution’s policies, procedures, training, or monitoring activities. Join us to learn tips and best practices to ensure your organization has updated its fair lending compliance management system to reflect this renewed focus.

WHO SHOULD ATTEND?
This informative session is designed for lenders, chief lending officers, compliance officers, and risk officers.

TAKE-AWAY TOOLKIT

  • List of reference materials for topics discussed
  • Exercises to train staff on specific fair lending areas
  • Explanation of how to determine sex and race when information is not collected
  • PDF of slides and speaker’s contact info for follow-up questions
  • Attendance certificate provided to self-report CE credits
  • Employee training log
  • Interactive quiz

NOTE: All materials are subject to copyright. Transmission, retransmission, or republishing of any webinar to other institutions or those not employed by your agency is prohibited. Print materials may be copied for eligible participants only.

MEET THE PRESENTER – Molly Stull, Brode Consulting Services, Inc.
Molly Stull began her career as a teller while working on her undergraduate degree and has continued working in the financial industry ever since. She has experienced the growth of a hometown bank, branch mergers, charter changes, name changes, etc. Stull has activated business resumption plans, performed secondary market quality control reviews, processed wires, filed SARs, and coordinated reviews with external auditors and examiners. Her favorite role has always been educating staff and strongly believes that if staff understands the reason for a process, they will be more compelled to follow the procedures. Stull holds a bachelor’s from the University of Akron and an MBA from Ashland University.

REGISTRATION OPTIONS

  • $245 – Live Webinar Access
  • $245 – OnDemand Access + Digital Download
  • $320 – Both Live & On-Demand Access + Digital Download

The CFPB has confirmed that the two final rules issued under the Fair Debt Collection Practices Act (FDCPA) will become effective on November 30, 2021. These new rules affect both financial institutions and their third-party debt collectors. The first rule focuses on debt collection communications (i.e., phone, voicemail, email, texts, and social media). It increases consumers’ control over how often and by what means a collector can communicate with them.

The second rule clarifies the disclosures that must be provided to consumers at the beginning of collection communications. It also addresses the specific steps that must be taken to disclose the existence of a debt to the consumer before reporting it to a credit reporting agency. In addition, it prohibits collectors from threatening to sue on time-barred debt. This webinar will explain the compliance implications to your systems and procedures so you can prepare before the November 30 deadline.

Attendance certificate provided to self-report CE credits.

HIGHLIGHTS

Explain the new rules regarding debt collection communications, such as voice messages, emails, texts, and social media
Observe the new call attempt restrictions – not more than seven times within seven days
Define the new term “limited-content message” and explain what information must (and must not) be included in such messages
Understand how and when collectors must contact the consumer before furnishing debt information to a credit reporting agency
Describe what qualifies as time-barred debt and how collectors must handle it
Implement sufficient oversight of in-house collectors and third-party debt collectors

TAKE-AWAY TOOLKIT

CFPB’s small entity compliance guide for the debt collection rules
CFPB’s executive summary of the final rules
Employee training log
Interactive quiz
NOTE: All materials are subject to copyright. Transmission, retransmission, or republishing of any webinar to other institutions or those not employed by your financial institution is prohibited. Print materials may be copied for eligible participants only.

WHO SHOULD ATTEND?
This informative session will benefit loan officers at all levels, loan operations personnel, credit administration staff, collection personnel, compliance officers, attorneys, managers, and others involved in the collection process.

ABOUT THE PRESENTER – Elizabeth Fast, JD & CPA Spencer Fane LLP
Elizabeth Fast is a partner with Spencer Fane Britt & Browne LLP where she specializes in the representation of financial institutions. Elizabeth is the head of the firm’s training division. She received her law degree from the University of Kansas and her undergraduate degree from Pittsburg State University. In addition, she has a Master of Business Administration degree and she is a Certified Public Accountant. Before joining Spencer Fane, she was General Counsel, Senior Vice President, and Corporate Secretary of a $9 billion bank with more than 130 branches, where she managed all legal, regulatory, and compliance functions.

REGISTRATION OPTIONS:

Live Webinar – $245
Recorded Webinar and Digital Download – $245 plus tax
Live Webinar, Recorded Webinar and Digital Download – $320 plus tax

As planned, the fourth session of the 2021 WBA Community Bankers for Compliance will be held in-person!

October 26, 2021, Stevens Point – Holiday Inn Hotel & Convention Center
October 27, 2021, Madison, DoubleTree by Hilton Madison East

 

TOPIC: Fair Debt Collection Practices Act and Home Equity Lines of Credit

The fourth quarter 2021 Community Bankers for Compliance program will focus on two different areas of a bank’s lending program.

First we will discuss the revisions to the Fair Debt Collection Practices Act regulation. This was originally going to be a topic in the second quarter 2022, however the CFPB delayed implementation until January 2022. Recently they reverted implementation back to November 2021, making this a time sensitive topic. Regardless of your status regarding the regulation, the presentation will provide useful information for all banks. For instance, how can you legally collect via text message, voicemail, email or other electronic means? Many banks will not have to comply with the regulation, or only portions of the regulation. The manual will include the whole regulation, as well as the new Small Entity Compliance Guide. But we will focus our attention on those areas that will be most useful to attendees.

In recent weeks we have received a number of questions, assignments, and review work for home equity lines of credit. While nothing really has changed in the regulation, the presentation will focus on those areas that appear to be the most troublesome. We will cover the entire HELOC portion of Regulation Z, but will focus on those items that have been most prevalent in hotline questions and phone calls. While most banks have a HELOC program, we will be covering this subject at the end of the day so that those banks that do not have a program can either learn about it as they are getting ready to begin offering the product or simply call it a day because it does not apply to them.

The subjects for the regulatory update will be determined by circumstances and releases from the various agencies.

Future Presentations

Subjects for future seminars will be shaped by regulatory events as they unfold. The CBC quarterly compliance program remains committed to providing as much up-to-the-minute information as possible. The program will closely monitor releases from the CFPB and other agencies to assure that you have the most up-to-date and accurate information possible.

Who Should Attend?

Compliance officers, senior mortgage management, lending management, lenders and processors, and any others with responsibilities for lending should attend. Additionally, audit personnel will find this session useful.