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Executive Letter: Federal Judge in Texas Delays Section 1071 Mandatory Compliance Dates for Some

By Rose Oswald Poels

Through an order issued earlier this week, a federal judge in the U.S. District Court, Southern District of Texas, McCallen Division enjoined implementation and enforcement of the Bureau of Consumer Financial Protection’s (CFPB) Section 1071 Small Business Data Collection and Reporting Rule while the United States Supreme Court hears a challenge to CFPB’s funding structure. This enjoinment however does not apply to all banks.

The American Bankers Association (ABA), Texas Bankers Association (TBA), and Rio Bank of McAllen, Texas (collectively, the plaintiffs) had jointly filed a lawsuit against CFPB earlier this spring seeking an injunction for all lenders covered by the rule. The plaintiffs requested the court enjoin the Section 1071 rule nationwide until the U.S. Supreme Court resolves the constitutionality of CPFB’s funding structure.

In 2022, the Fifth Circuit held CFPB’s funding structure unconstitutional because Congress funded CFPB directly from the Federal Reserve; such funding contradicts the Constitution’s Appropriations Clause. CFPB appealed the Fifth Circuit’s decision. See CFPB v. Community Financial Services Association of America. The U.S. Supreme Court agreed to take up the case; however, the Supreme Court is not scheduled to hear arguments until October. A decision by the Supreme Court could be released any time before the end of June 2024. These dates are very close to mandatory implementation of the Section 1071 rule — which for some banks begins as soon as October 2024.

As mentioned above, the federal Texas judge enjoined implementation and enforcement of CFPB’s Section 1071 rule. Unfortunately, however, the court denied the plaintiff’s request for nationwide injunctive relief. The order only applies to the plaintiffs’ members. As a result, the relief only applies to ABA members, TBA members, and to Rio Bank.

I am currently in discussion with outside counsel regarding the narrowness of the order and whether other steps may be taken to help find relief for WBA-member banks not covered by the order. I encourage banks that have yet to determine applicability of Section 1071 to the bank to determine whether and when it must comply with Section 1071, as applicable.

As a reminder, implementation of the Section 1071 rule is staggered. Banks that originate more than 2,500 covered credit transactions in each of the two preceding calendar years must comply with the rule no later than October 1, 2024; banks that originate less than 2,500 but at least 500 covered credit transactions in each of the two preceding calendar years must comply no later than April 1, 2025; and banks that originate less than 500 but at least 100 covered credit transactions in the previous two calendar years must implement by January 1, 2026.

A covered credit transaction is one that meets the definition of “business credit” under Regulation B unless the credit is specifically excluded by the Section 1071 rule. Agricultural purpose loans are included in the Regulation B definition. Specifically excluded credit from the definition of a covered credit transaction under Section 1071 are: trade credit, HMDA-reportable transactions, insurance premium financing, public utility credit, securities credit, incidental credit, factoring, and leases, as defined by the rule. The ability to exclude HMDA-reportable transactions from the definition of covered credit transaction applies to both HMDA-reporting and non-HMDA reporting banks.

Read the Order
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Executive Letter: 2023 Brings Adjusted Regulatory Thresholds

Rose Oswald PoelsBy Rose Oswald Poels

Happy New Year! As we step into 2023, there are several thresholds which have been adjusted by both state and federal regulators which go into effect now that the new year has arrived. Below is a collection of thresholds effective January 1, 2023, including a link to pull each publication for reference.

  • Based upon the annual percentage increase in the CPI-W as of 06/01/2022, the exemption threshold for Regulation Z (Truth in Lending Act) will increase to $66,400, up from $61,000.
  • Based upon the annual percentage increase in the CPI-W as of 01/01/2022, the exemption threshold for Regulation M (Consumer Leasing Act) will increase to $66,400, up from $61,000.
  • Based on the CPI-W in effect as of 06/01/2022, the exemption threshold under Regulation Z for HPML appraisals will increase to $31,000, up from $28,500.
  • Based on the 8.6 percent increase in the average of the CPI-W for the 12-month period ending in November 2022, the asset-size threshold to be exempt from collecting HMDA data in 2023 is adjusted to $54 million, up from $50 million.
  • The dollar amount of the maximum allowable charge for disclosures by a consumer reporting agency (CRA) to a consumer pursuant to FCRA section 609 for the 2023 calendar year is $14.50.
  • The asset-size threshold which exempts creditors from the requirement to establish an escrow account for HPMLs will be:
    • For creditors and their affiliates that regularly extended covered transactions secured by first liens, the asset-size threshold is adjusted to $2.537 billion, up from $2.336 billion; and
    • The exemption threshold for certain insured depository institutions with assets of $10 billion or less is adjusted to $11.374 billion, up from $10.473 billion.
  • Based on the CPI-W in effect as of 06/01/2022, the dollar amount thresholds for HOEPA and QM-related loans have been adjusted as follows:
    • For HOEPA loans, the adjusted total loan amount threshold for high-cost mortgages will be $24,866.
    • The adjusted points-and-fees dollar trigger for high-cost mortgages will be $1,243.
    • For QMs under the General QM loan definition in § 1026.43(e)(2), the thresholds for the spread between the annual percentage rate (APR) and the average prime offer rate (APOR) will be:
      • 2.25 or more percentage points for a first-lien covered transaction with a loan amount greater than or equal to $124,331;
      • 3.5 or more percentage points for a first-lien covered transaction with a loan amount greater than or equal to $74,599 but less than $124,331;
      • 6.5 or more percentage points for a first-lien covered transaction with a loan amount less than $74,599;
      • 6.5 or more percentage points for a first-lien covered transaction secured by a manufactured home with a loan amount less than $124,331;
      • 3.5 or more percentage points for a subordinate-lien covered transaction with a loan amount greater than or equal to $74,599; or
      • 6.5 or more percentage points for a subordinate-lien covered transaction with a loan amount less than $74,599.
    • For all categories of QMs, the thresholds for total points and fees will be:
      • 3 percent of the total loan amount for a loan greater than or equal to $124,331;
      • $3,730 for a loan amount greater than or equal to $74,599 but less than $124,331;
      • 5 percent of the total loan amount for a loan greater than or equal to $24,866 but less than $74,599;
      • $1,243 for a loan amount greater than or equal to $15,541 but less than $24,866; and
      • 8 percent of the total loan amount for a loan amount less than $15,541.
  • For open-end consumer credit plans under TILA, the threshold that triggers requirements to disclose minimum interest charges will remain unchanged at $1.00.
  • Based upon the CPI-W, the CRA regulation has adjusted the asset-size thresholds used to define “small bank” and “intermediate small bank” to be:
    • Small bank means a bank that, as of December 31 of either of the prior two calendar years, had assets of less than $1.503 billion.
    • Intermediate small bank means a small bank with assets of at least $376 million as of December 31 of both of the prior two calendar years and less than $1.503 billion as of December 31 of either of the prior two calendar years
  • The DFI has established the interest rate that must be paid on required escrow accounts under section 138.052(5) of the Wisconsin Statutes. The new rate is 0.11%.
  • The FDIC Designated Reserve Ratio remains 2 percent for 2023.
  • The OCC assessment rates are reduced for the general assessment fee schedule. OCC has maintained assessment rates from 2022 for the independent trust and independent credit card fee schedules. Also, there is no inflation adjustment to assessment rates.
  • Contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased to $22,500, up from $20,500. The limit on annual contributions to an IRA increased to $6,500, up from $6,000.
  • Multifamily loan purchase caps for Fannie Mae and Freddie Mac will be $75 billion for each enterprise, for a combined total of $150 billion. The caps reflect an anticipated contraction of the multifamily originations market this year. FHFA will require that at least 50 percent of Fannie’s and Freddie’s multifamily business be mission-driven affordable housing.
  • The conforming loan limit values for mortgages to be acquired by Fannie Mae and Freddie Mac in 2023 for one-unit properties will be $726,200, an increase from $647,200.
  • New loan limits for FHA’s Single Family Title II Forward and Home Equity Conversion Mortgage (HECM) insurance programs, based upon property size and location, range from $472,030 to $3,142,800.

I am looking forward to this new year and excited about what 2023 may bring. Be sure to stay connected with WBA through our various releases and publications, and through our social media channels.

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Executive Letter: Regulatory Advocacy in Action!

Rose Oswald PoelsBy Rose Oswald Poels

Last week, bankers from Wisconsin and Illinois traveled to Washington D.C. together for in-person meetings with banking regulators. This trip, organized for the last 11 years by WBA, has for the last two years also welcomed bankers from Illinois.

I have always found this trip to be productive given the intentionally smaller group of bankers who attend and the senior level officials who meet with us. This year was no exception!

Like visits to Washington D.C. to meet with our elected officials, meetings with regulators do not result in meaningful, visible change overnight. However, if we don’t share the stories demonstrating the impact that regulations have on banking operations and consumers in the Midwest, their perspective is only what they know and see in Washington D.C. As the burden of federal regulations remains substantial on banks, it is critical that we continually advocate so to lessen the impact.

This year, our primary list of issues included small business data collection (1071 Rule), NSF/representment of checks and UDAAP (Unfair, deceptive, or abusive acts and practices), overdraft programs, deposit insurance assessment rates, CRA, and the definition of tangible equity capital in Federal Housing Finance Agency (FHFA) rules.

Our group had several meaningful conversations over the short two-day trip with senior officials from the Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), and FHFA, as well as with Director Chopra from the Consumer Financial Protection Bureau (CFPB). During these conversations we learned it is likely that both the final CRA modernization rule and the 1071 rule would be issued at around the same time; however, there could be a phased-in implementation period for 1071.

The general counsel for FHFA heard from several of us in attendance regarding the very real and negative impact the current definition of tangible equity capital could have on community banks’ ability to borrow from the Federal Home Loan Banks and promised to share this impact with decisionmakers starting that afternoon. Overall, I was very pleased with the active involvement of the bankers during the meetings and the level of engagement we had with the various regulators.

I would like to thank the following Wisconsin bankers for joining me and WBA’s Vice President – Legal Heather MacKinnon on this trip:

  • WBA Chair Dan Peterson, Stephenson National Bank and Trust in Marinette
  • Al Araque, Johnson Financial Group in Racine
  • PJ Childers, Crossbridge Community Bank in Tomahawk
  • Kristen Gagliano, North Shore Bank in Brookfield
  • Corey Hoze, Associated Bank in Milwaukee
  • Mark Oldenberg, Security Financial Bank in Eau Claire
  • Terry Rosengarten, Unity Bank in Augusta
  • Theresa Wiese, First Business Bank in Madison

I would also like to thank Dave Feldhaus from the FHLBank of Chicago for joining us on this trip and the FHLBank of Chicago for sponsoring our dinner.

If you are interested in joining WBA on its annual regulatory advocacy trip in October of 2023, please let me know. As you can tell, we accomplish a lot in a short period of time and your continued advocacy for our industry makes the greatest impact in ushering the movements most important to our communities.

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Executive Letter: FHLBank Regulation Can Impact a Member Bank’s New Advance Option

Rose Oswald PoelsBy Rose Oswald Poels

Given recent rate increases by the Federal Reserve and the overall market impact of the current economy, banks that have lines with a Federal Home Loan Bank (FHLBank) need to be mindful of how FHLBank regulation can impact a member bank’s ability to obtain new FHLBank advances or letters of credit. With this Executive Letter, I wanted to be certain FHLB member banks are aware of the possibility.

Under FHLBank Regulation 12 CFR 1266.4(b), a FHLBank cannot make a new advance to a member bank whose tangible capital is not positive. To make a determination of whether a member bank has negative tangible capital, the FHLBank will use the member bank’s most recently available Call Report data. A member bank would not be considered to have negative tangible capital until its quarterly report is filed.

As an exception, a new advance may be made if the member bank’s prudential federal regulator (the Federal Reserve or OCC) or federal insurer (FDIC) requests, in writing, the FHLBank lend to the member bank. It is my understanding that the federal regulators are currently not willing to issue such instruction unless a particular member bank has a dire liquidity need for the advance.

Historically, bank capital calculations of the prudential federal banking regulators and the Federal Housing Finance Agency (FHFA) were similar. However, recent changes made to capital calculations by the banking regulators have not been adopted by FHFA. In particular, under FHLBank regulations the definition of tangible capital is inclusive of Accumulated Other Comprehensive Income (AOCI). Therefore, this difference will impact those member banks that made the election to opt-out of the requirement to include components of AOCI when calculating common equity tier 1 capital under Basel III rules.

It is important to note that the FHLBank regulation does allow member banks with negative tangible capital to renew outstanding advances, for successive terms of up to 30 days each. There is no limit to the number of times a member bank may roll over an existing advance. Such member banks may also renew outstanding advances for a term greater than 30 days at the written request of the appropriate federal banking regulator or FDIC as federal insurer.

It is also important to note that the limitation for a new advance does not impact a member bank’s use of Community Investment Products or for a member bank’s ability to sell loans into FHLBank’s Mortgage Partnership Finance (MPF) Program.

FHLBank member bankers who may be impacted by this limitation should work closely with their FHLBank Sales Director for more information specific to the member. Affected member banks should also work closely with your accounting and investment resources as there may be options to consider as a means to avoid reaching a negative tangible capital position. Accounting and investment resources will also be able to explain the impact of such options to the member bank in areas other than under FHLBank regulation.

WBA is monitoring the impact of this FHLBank regulation component and is working for a resolution whereby banks whose tangible capital is negative due to a difference in tangible capital calculations are not negatively impacted by an inability to obtain new FHLBank advances. WBA plans to advocate for a change in the rule starting with addressing the issue directly with FHFA later this month during our D.C. Regulatory Trip. In addition, WBA is also working to organize an all-member call on this issue — please watch our publications for an announcement of a complimentary webinar in the near future.

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Executive Letter: Review and Act on Deposit-related Activities FDIC Has Identified as Potential UDAAP

Rose Oswald PoelsBy Rose Oswald Poels

In recent conversations with state bankers associations across the country, as well as bankers here in Wisconsin, it is clear that regulators, particularly the Federal Deposit Insurance Corporation (FDIC), are very focused on certain deposit-related activities citing them as violations in examinations, and also identifying them as potential unfair, deceptive, or abusive acts or practices (UDAAP) violations. As a result, I want to highlight these concerns again for the membership as a follow-up to my April 5 Executive Letter e-pub.

In that document, I shared information about how FDIC has identified (a) the assessment of overdraft fees for “force pay” transactions and (b) charging multiple non-sufficient funds fees (NSF fees) for the same transactions presented multiple times against insufficient funds as deposit-related activities which FDIC believes may result in a heightened risk of violations of UDAAP. In that same publication, I made recommendations to help banks take action.

In Wisconsin, as in other states, current FDIC compliance examinations include a review of disclosures and charges for these activities. FDIC examiners have been aggressive with their new interpretations, and time is of the essence for banks to act. In some cases, WBA understands that banks receiving these violations are told to go back at least 12 months to determine consumer harm.

With FDIC adopting a new interpretation that disclosing that one NSF fee would be charged “per item” or “per transaction” is not clearly defined and does not explain that the same transaction might result in multiple NSF fees if re-presented, banks should review disclosures to determine whether FDIC’s new interpretation affects the bank. If it does, banks should revise disclosure language accordingly and consider other risk-mitigating steps as outlined by FDIC in the recent publications included in the April 5 Executive Letter.

A bank needs to also understand its actual presentment process and whether it has any ability or inability to identify items resubmitted by a merchant for payment. Review should also include whether the bank can track or identify when a check — presented in physical form the first time — is represented as Automated Clearing House (ACH) the second time by the merchant. Banks should be prepared to explain to examiners their processes and any operational and system limitations in the ability to identify represented items or to trace items if an item was converted when represented.

With respect to the issue of assessing overdraft fees for “force pay” transactions, if a “no pay” bank used the Regulation E model Form A-9 to solicit a consumer’s authorization or opt-in to assess overdraft fees for ATM and one-time point-of-sale (POS) debit card transactions in “force pay” transactions, that model form should not be used in that manner. It was not intended for such transactions. In such situations, banks should review how best to disclose their practice for “force pay” transactions with their counsel.

Failure of a bank to take action will likely result in FDIC citing a UDAAP violation and potentially imposing consumer reimbursement of charges in connection with these deposit-related activities.

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Reminder: Revised General QM Loan Definition

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.

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Executive Letter: Joint Agency Proposal to Strengthen CRA Regulations

Rose Oswald Poels By Rose Oswald Poels

Last week, the Federal Reserve Board (FRB), Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC) released a joint statement proposing changes to the Community Reinvestment Act (CRA) regulations. The joint proposal would both strengthen and modernize the regulations by expanding access to credit, investment, and basic banking services; adapt to internet and mobile banking changes; provide greater clarity and consistency with both banks and their customers; and create unique CRA evaluations requirements.

The CRA, originally enacted in 1977, encourages banks and savings associations to help meet the need of all borrowers — including low- and moderate-income individuals. In recent years, the industry has seen the agencies attempt to modernize CRA to better address new technologies and community-investment opportunities. However, those efforts left much frustration for the industry when OCC implemented its own “updated” CRA regulation in June 2020, while FDIC and FRB retained existing standards, interpretations, and regulations.

WBA advocated heavily against separate CRA regulations in meetings with the agencies and in filed comment letters. Successfully, late last year, OCC repealed its independent CRA regulation and now the agencies are once again acting together in proposing a unified CRA regulation. I am pleased to see the expansion of transparency between agencies.

The new joint proposal has the following key elements:

  • Expand access to credit, investment, and basic banking services in low- and moderate-income communities. Under the proposal, the agencies would evaluate bank performance across the varied activities they conduct and communities in which they operate so that CRA is a strong and effective tool to address inequities in access to credit. The proposal would promote community engagement and financial inclusion. It would also emphasize smaller value loans and investments that can have high impact and be more responsive to the needs of LMI communities.
  • Adapt to changes in the banking industry, including internet and mobile banking. The proposal would update CRA assessment areas to include activities associated with online and mobile banking, branchless banking, and hybrid models.
  • Provide greater clarity, consistency, and transparency. The proposal would adopt a metrics-based approach to CRA evaluations of retail lending and community development financing, which includes public benchmarks, for greater clarity and consistency. It also would clarify eligible CRA activities, such as affordable housing, that are focused on LMI, undeserved, and rural communities.
  • Tailor CRA evaluations and data collection to bank size and type. The proposal recognizes differences in bank size and business models. It provides that smaller banks would continue to be evaluated under the existing CRA regulatory framework with the option to be evaluated under aspects of the new proposed framework.
  • Maintain a unified approach. The proposal reflects a unified approach from the bank regulatory agencies and incorporates extensive feedback from stakeholders.

I highly encourage you to join WBA in commenting on this joint proposal by August 5, 2022. Please contact WBA’s Heather Mackinnon, vice president – legal, at hmackinnon@wisbank.com and Scott Birrenkott, assistant director – legal, at sbirrenkott@wisbank.com if you have any questions regarding the proposed regulation updates.

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Executive Letter: FDIC Identifies Charges in Connection with Deposit-Related Activities as Potential UDAAP

Rose Oswald PoelsBy Rose Oswald Poels

In two separate publications, FDIC has recently identified deposit-related activities which, depending upon how banks disclose charges for such activities, may result in a heightened risk of violations of Section 5 of the FTC Act — otherwise known as unfair, deceptive, or abusive acts or practices (UDAAP).

FDIC has identified the assessment of overdraft fees for “force pay” transactions and charging multiple NSF fees for same transactions presented multiple times against insufficient funds as the deposit-related activities of concern. I have outlined both scenarios below.

Potential Issues with Assessing Overdraft Fees for “Force Pay” Transactions  

In a quarterly newsletter issued by its Dallas Region, FDIC outlined potential issues with assessing overdraft fees for “force pay” transactions in certain situations. There may be times when a bank authorizes an ATM or one-time POS debit card transaction based on sufficient funds in a consumer’s account at the time of authorization; however, at settlement, the account has insufficient funds to cover the transaction. Due to a bank’s contract with its payment network providers, the bank is required to pay these transactions even though the customer does not have sufficient funds in their account at settlement. FDIC refers to this type of transaction as a “force pay” transaction.

As outlined by FDIC, some banks have a policy and practice of declining to authorize and pay any ATM or one-time POS debit card transactions when a customer has insufficient funds available in the account to cover the transaction. FDIC refers to these banks as “no pay” banks. Other banks may offer an overdraft program, but some consumers do not qualify, have not yet met all eligibility requirements, or do not opt-in to participate.

FDIC has identified that some “no pay” banks solicit a consumer’s authorization or opt-in, using an overdraft opt-in form similar to the Regulation E model form A-9, to assess overdraft fees for ATM and one-time POS debit card transactions in “force pay” transactions.

FDIC stated it believes the use of the A-9 model form for this purpose may be considered deceptive, as a reasonable consumer may be misled into believing that the bank would generally pay all overdrafts caused by ATM and one-time POS debit card transactions. Additionally, the A-9 model form does not disclose that force pay transactions would be paid regardless of whether the consumer opts in. FDIC also identified how force pay transactions could lead to concerns at banks that offer overdraft programs, although those are more nuanced transactions and are not discussed here.

FDIC offered the following suggestions to mitigate risks:

  • Maintain policies and procedures to ensure compliance with applicable regulatory requirements under Regulation E;

  • Ensure that disclosures provided to consumers are clear and conspicuous, accurately reflect bank practices, and do not suggest that the bank offers an overdraft program when it does not;

  • Confirm a customer’s opt-in is deactivated in the deposit processing platform when he/she does not have access to the overdraft program;

  • Verify a customer’s opt-in is deactivated in the deposit processing platform when he/she revokes his/her opt-in election or when the bank terminates the customer’s access to the overdraft program; and

  • Notify customers as soon as possible if the bank independently terminates their access to the overdraft program.

Potential Issues with Re-Presentment of Unpaid Transactions 

In a separate publication, Consumer Compliance Supervisory Highlights, FDIC outlined potential issues with charging multiple NSF fees for re-presentment of unpaid transactions. FDIC found disclosing that one NSF fee would be charged “per item” or “per transaction” is not clearly defined and did not explain that the same transaction might result in multiple NSF fees if re-presented. FDIC stated it believes there is risk of unfairness if multiple fees are assessed for the same transaction in a short period of time without sufficient notice or opportunity for consumers to bring their account to a positive balance.

FDIC also addressed that re-presented transactions have been the subject of recent class action lawsuits involving banks, including FDIC-supervised institutions. The lawsuits typically allege breach of contract due to the omission of important information about when the fee would be assessed.

FDIC again offered suggestions to mitigate risks, including:

  • Eliminating NSF fees

  • Declining to charge more than one NSF fee for the same transaction, regardless of whether the item is represented

  • Disclosing the amount of NSF fees and how such fees will be imposed, including:

  • Information on whether multiple fees may be assessed in connection with a single transaction;

  • The frequency with which such fees can be assessed; and

  • The maximum number of fees that can be assessed in connection with a single transaction.

  • Reviewing customer notification practices related to NSF transactions and the timing of fees to provide the customer with an ability to avoid multiple fees for re-presented items

  • Conducting a comprehensive review of policies, practices, and disclosures related to re-presentments to ensure the manner in which NSF fees are charged is communicated clearly and consistently

  • Working with service providers to retain comprehensive records so that re-presented items can be identified

Conclusion 

I would not recommend the use of Regulation E model form A-9 as a means to obtain a consumers’ authorization or opt-in for a force pay transaction. There is not a model form for such transactions and banks need to review how best to disclose their practice for force pay transactions with their counsel. For banks offering overdraft programs, banks need to be careful how it treats a consumer’s opt-in if the opt-in election was provided but access to the overdraft protection coverage has not yet begun and when the bank terminates access to the overdraft program.

I would also recommend banks review their deposit account disclosures, statement of fees, and account rules documents to further determine how to accurately disclose an NSF fee on a re-presented item, if applicable.

If using FIPCO forms, the WBA 384 Deposit Account Rules document was revised in March 2021 to further clarify that a financial institution may charge a fee each time the same check, transfer request, or withdrawal request is returned unpaid. Language was also added to state that the depositor should review the schedule of fees for a listing and amount of such fees. Additionally, the revised form instruction also set forth that if the user intends to charge a fee each time the same check, transfer request, or withdrawal request is returned unpaid, it is important that the schedule of fees explains the financial institution’s intent to charge a fee each time rather than one fee regardless of the number of times the check, transfer request, or withdrawal request is returned unpaid.

If scrutinized by a regulator for charging multiple NSF fees for a re-presented item, I recommend the bank explain to the regulator the actual presentment process and any inability to identify items resubmitted by a merchant for payment.

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Legal Q&A: New Interest Rate on Residential Mortgage Loan Escrow Accounts

Wisconsin DFI sets escrow interest rate at 0.09% for 2022

By Scott Birrenkott

Q: Has the Wisconsin Department of Financial Institutions set the Interest Rate on Required Residential Mortgage Loan Escrow Accounts for 2022?

A: Yes. The Wisconsin Department of Financial Institutions, Division of Banking (DFI), has calculated the interest rate required to be paid on escrow accounts for residential mortgage loans subject to Wisconsin Statute Section 138.052(5) to be 0.09% for 2022. The interest rate shall remain in effect through December 31, 2022.

Note that while Wisconsin Section 138.052 previously required financial institutions to pay interest on the balance on any required escrow accounts, Wisconsin Act 340 modified this requirement so that it only applies to loans originated prior to the effective date of the Act (April 18, 2018). Thus, financial institutions must continue to pay interest on required escrow accounts prior to April 18, 2018. Any escrow account associated with a loan originated after the effective date of Act 340, 138.052 no longer requires payment of interest. Wis. Stat. Section 138.052 applies to loans secured by a first lien or first lien equivalent in a 1-4 family dwelling that is used as the borrower’s principal residence.

The escrow rate notice may be found here.

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Legal Q&A: Annual Threshold Adjustments for 2022 Effective January 1

By Scott Birrenkott

Q: Has CFPB Released its Truth in Lending (Regulation Z) Annual Threshold Adjustments for 2022?

A: Yes. The Consumer Financial Protection Bureau has revised the threshold dollar amounts for Regulation Z, which implements the Truth in Lending Act (TILA). Specifically, has revised the dollar amounts for provisions implementing amendments to TILA under the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), the Home Ownership and Equity Protection Act (HOEPA) and the ability to repay/qualified mortgage (ATR/QM), and the dollar threshold for exempt consumer credit transactions. Effective January 1, 2022, the following thresholds will be adjusted to the new dollar amounts.

For HOEPA loans, the adjusted total loan amount threshold is $22,969, an increase from $22,052 in 2021. The adjusted points and fees dollar trigger for high-cost mortgages is $1,148, an increase from $1,103 from 2021.

For qualified mortgages (QMs) under the General QM loan definition in §1026.43(e)(2), the thresholds for the spread between the annual percentage rate (APR) and the average prime offer rate (APOR) in 2022 will be: 2.25 or more percentage points for a first-lien covered transaction with a loan amount greater than or equal to $114,847; 3.5 or more percentage points for a first-lien covered transaction with a loan amount greater than or equal to $68,908 but less than $114,847; 6.5 or more percentage points for a first-lien covered transaction with a loan amount less than $68,908; 6.5 or more percentage points for a first-lien covered transaction secured by a manufactured home with a loan amount less than $114,847; 3.5 or more percentage points for a subordinate-lien covered transaction with a loan amount greater than or equal to $68,908; or 6.5 or more percentage points for a subordinate-lien covered transaction with a loan amount less than $68,908.

For all categories of QMs, the thresholds for total points and fees in 2022 will be 3 percent of the total loan amount for a loan greater than or equal to $114,847; $3,445 for a loan amount greater than or equal to $68,908 but less than $114,847; 5 percent of the total loan amount for a loan greater than or equal to $22,969 but less than $68,908; $1,148 for a loan amount greater than or equal to $14,356 but less than $22,969; and 8 percent of the total loan amount for a loan amount less than $14,356.

For open-end consumer credit plans under the CARD Act amendments to TILA, the adjusted dollar amount in 2022 for the safe harbor for a first violation penalty fee will increase to $30 and the adjusted dollar amount for the safe harbor for a subsequent violation penalty fee will increase to $41.

Lastly, based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers as of June 1, 2021, the dollar threshold for exempt consumer credit transactions under Regulation Z will increase from $58,300 to $61,000 effective January 1, 2022.

If you have any questions on this topic or other matters of compliance, contact WBA’s legal call program at 608-441-1200 or wbalegal@wisbank.com.

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questions@wisbank.com

608-441-1200

4721 S Biltmore Ln.
Madison, WI 53718

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