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Introductions
Doug Johnson
Director of Product
Management. Doug is
responsible for directing and
managing the Baker Hill
product strategy, market
research, as well as client user
community interaction.
Melissa Sewell, MBA, NCCO
Studied Finance and Economics
at Indiana University and is
pursuing Doctor of
Jurisprudence Degree from IU
McKinney School of Law.
Background is predominantly in
the financial industry with a
focus in areas of Internal Audit
and Regulatory Compliance.
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Legal disclaimer
The materials made available for or during this presentation are
for informational purposes only and not for the purpose of
providing legal advice. Neither of the presenters are attorneys.
You should contact your attorney to obtain advice with respect
to any particular issue or problem.
4. AGENDA
1. New Regulations & Advisory Bulletins
2. New Solutions & Compliance
3. Future Compliance Hot Topics
5. 1. NEW REGULATIONS & ADVISORY
BULLETINS
HMDA Examiner Transaction Testing Guidelines
Small Dollar Rule
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HMDA key fields interagency statements
• Examiners identified 37 Key HMDA Data Fields for 2018 filings.
• Fields selected were chosen as most important for CRA and
HMDA examination purposes.
• Also, considered likeliness of being recorded correctly based
upon past examinations.
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37 key HMDA fields
Universal Loan
Identifier (ULI)
Application Date Loan Type Loan Purpose Occupancy Type
Loan Amount Action Taken Action Taken Date Census Tract Income
Race of Applicant or
Borrower: 1
Race of Applicant or
Borrower: 2
Race of Co-Applicant or
Co-Borrower: 1
Race of Co-Applicant or
Co-Borrower: 2
Ethnicity of Applicant
or Borrower: 1
Sex of Applicant or
Borrower
Sex of Co-Applicant or
Co-Borrower
Age of Applicant or
Borrower
Age of Co-Applicant or
Co-Borrower
Ethnicity of Co-
Applicant or Co-
Borrower: 1
Lien Status Credit Score of
Applicant or Borrower
Credit Score of Co-
Applicant or Co-
Borrower
Origination Charges Discount Points
Lender Credits Interest Rate Debt-to-Income Ratio Total Units Loan Term
Automated
Underwriting System
Result: 1
Manufactured Home
Secured Property Type
Combined Loan-To-
Value Ratio
Property Value Reverse Mortgage
Open-End Line of
Credit
Business or Commercial
Purpose
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FFIEC HMDA Examiner Transaction Guidelines
• Thresholds for errors, size of sampling size,
and tolerances for minor errors.
• Discusses compliance management system
and considerations to HMDA data errors.
• Applies to all institutions
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FFIEC Tolerance Statement
But there is relief….
• 3 calendar days for date received vs date
shown on application.
• $1,000 for loan amount and gross annual
income (rounding errors).
• 3 calendar days for date action taken.
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FFIEC Ethnicity or Race Data Field Errors
But wait, it gets better….
The group of Ethnicity or Race data field
equate to one data field for error
purposes.
Statement:
“If one or more of the six ethnicity of
applicant or borrower fields have errors,
they would count as one (and only one)
error for that data field group.”
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Small Dollar Rule implementation
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Small Dollar Rule Scope 12 CFR 1041
Short-term
• Repay obligation within 45 days
Longer-term balloon
• Closed-end: At least one payment that is more than twice as large as
any other payment
• Open-end: Repay substantially the entire amount of an advance in a
single payment more than 45 days after the advance is made or is
required to make at least one payment on the advance that is more
than twice as large as any other payment(s)
Other longer-term
• The cost of credit for the loan exceeds 36 percent per annum, and;
• The lender or service provider obtains a leveraged payment
mechanism.
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Excluded from Scope
• Purchase money security interest loans (“sole-purpose”)
• Real estate and dwelling secured loans
• Credit card loans
• Student loans
• Overdraft services
• No cost advances
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Conditional exclusions
• Accommodation Loans: fewer than 2,500 loans in each of the
current and previous years and less than 10 percent of
revenues.
• Alternative loans: P.A.L. previously approved by the NCUA for
credit unions.
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UDAAP and Small Dollar Rule
• Consumer’s ability to repay
• Short-term or longer-term balloon-payment loans
• Not imposing a ban on any “product” but instead is simply
prescribing rules to prevent the acts or practices so identified
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Baker Hill and Small Dollar Rule
• Reviewed the Rules
• Considered the Rules and the
implications to clients in designing
NextGen
• Monitoring Congress and CFPB actions
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CECL overview and purpose
• CECL stands for Current Expected
Credit Loss
• Allows the leveraging of current
internal credit risk systems to
estimate expected credit losses.
• Purpose is to provide more
decision-useful information to
users of financial statements.
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CECL changes
• Changes the ALLL “probable” loss
threshold to an “expected” threshold
• Recognizes potential credit losses earlier
in the life of the loan.
• Does not change total amount of net
charge-offs on loans or loan is placed in
nonaccrual status.
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CECL “Expected” vs “Incurred”
• CECL is a risk based approach.
• Life of loan loss expectation vs
annual loss rates.
• At origination vs incurred
• Historic losses + forecast
adjustment + an adjusted
historic loss estimate after the
forecast period.
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CECL effective dates
Type US GAAP
Effective Date
Call Report
Effective Date
PBE SEC Filers After 12/15/2019 3/31/2020
Other PBEs After 12/15/2020 3/31/2021
Non-PBEs After 12/15/2020 12/31/2021
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Electronic signatures
• E-Sign Act (15 USC 7001) applies to electronic signatures
when federal law applies.
• States laws are often modeled after the Uniform Electronic
Transactions Act. (model law)
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ESIGN Act Notice (before consenting)
• Option to receive a paper copy.
• Right to withdraw consent and consequences if revoke
consent.
• Extent of consent.
• How to obtain a paper copy of an electronic record and
fees/repercussions if elect paper copies.
• Hardware and software requirements for access and retention
of the electronic disclosures.
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ESIGN ACT Consumer Consent
• Reasonably demonstrates
that the consumer will be
able to access required
notices or disclosures
electronically.
• Re-consent for changes to
hardware and software
requirements in a way that
demonstrates can access.
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Additional requirements with UETA – attribution
• Procedures applied to the determine the person who
“clicked” is the person who “signed.”
• Look at the context and the surrounding circumstances.
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Additional regulations & guidance
• National Banks:
– 12 CFR 7.5002, Furnishing of products and services by electronic
means and facilities.
– OCC Bulletin 99-20
• Federal Credit Unions
– NCUA Regulatory Alert 01-RA-03
• All Financial Institutions:
– FFIEC E-Banking Booklet
– NIST Digital Identity Guidelines, SP 800-63-3
31. 3. FUTURE HOT TOPICS
Debt Collection
Small Business Lending and Recordkeeping
Bills to Change Dodd-Frank
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Debt collection
• CFPB Director Mulvaney’s memo statement.
– “More formal rulemaking and less regulations by enforcement.”
– “We will be prioritizing…almost a third of complaints into this office
related to debt collection.”
• 2017 Annual Report, types of complaints:
– Collecting the right amount from the consumer.
– Consumer’s understanding the debt collection process and their
rights.
– Consumer’s treatment during the collection process.
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Small business lending
Dodd-Frank Section 1071 amended ECOA
• Whitepaper issued, “Key dimensions of the
small business lending landscape.” May 2017
• Some comments indicate additional
outreach is needed before issuance of
proposed rules. Others have sought repeal.
• Future is uncertain.
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Mortgage Choice Act of 2017 H.R.1153
• House passed the bill on February 8, 2018.
• Proposed amendment to qualified mortgage cap on points
and fees.
• Fee must be bona fide third-party charge not retained by the
mortgage originator, creditor, or an affiliate of the creditor or
mortgage originator.
• If becomes law, CFPB will have 90 days to issue final
regulations.
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Regulatory Relief, Senate Bill S.2155
• Senate passed the bill on March 16, 2018.
• Relief changes to Ability to Repay, Integrated Disclosure Rules
(“TRID”), HMDA, and Safe Act.
• Social Security Administration database tools.
• Assets size changes for Volker Rule ($10 billion and 5%)
• Expansion of the types of credit scores available for Fannie
Mae and Freddie Mac
• SIFI/Holding Company threshold changes ($3 billion and $50
billion)
“For the purpose of evaluating financial institutions’ compliance with HMDA requirements, examiner staff will focus primary attention on the Designated Key HMDA Data Fields during transaction testing pursuant to HMDA for data collected on or after January 1, 2018.”
FIL-51-2017
Select a random sample from the LAR. Then verify the accuracy of the data entries in the LAR sample (Stage 1) against the corresponding loan files.
If the number of errors identified in the Stage 1 Sample falls below the Stage 1 Error Threshold for each and every data field reviewed, no further sample review is required and the examiners may conclude the transaction testing.
If the number of errors in any data field reviewed equals or exceeds the Stage 1 Sample Threshold, examiners should proceed to Stage 2 and review the remainder of the Total Sample. In Stage 2, examiners must review all data fields that had one or more errors in the Initial Sample and may review any or all Initial Sample data fields reviewed and found to have no errors in Stage 1.
If, after reviewing the remainder of the Stage 2 Sample, the total number of errors in any data field equals or exceeds the Resubmission Threshold, examiners should direct the financial institution to correct any such data field in its full HMDA LAR and resubmit its HMDA LAR with the corrected data field(s).
If examiners have a reasonable basis, a financial institution may be directed to correct one or more individual data fields and resubmit its HMDA LAR even if errors do not meet Resubmission threshold.
For complete details refer to FIL-36-2017, pages 3-4
“Examiners should not count the following differences between data in the HMDA LAR and in the loan files as errors:
Three calendar days or less in the date the application was received or the date shown on the application form reported pursuant to 12 CFR 1003.4(a)(1)(ii);
One thousand dollars or less in the amount of the covered loan or the amount applied for, as applicable, reported pursuant to 12 CFR 1003.4(a)(7);
Three calendar days or less in the date of the action taken by the financial institution reported pursuant to 12 CFR 1003.4(a)(8)(ii), provided that such differences do not result in reporting data for the wrong calendar year; and
Rounding errors in reporting the dollar amount, rounded to the nearest thousand, of the gross annual income relied on in making the credit decision or, if a credit decision was not made, the gross annual income relied on in processing the application, reported pursuant to 12 CFR 1003.4(a)(10)(iii).”
FIL-36-2017, page 5
For an applicant who indicates “Hispanic or Latino” and “Mexican” in response to the question of ethnicity, a financial institution reports the information in two FIG fields, for example, Ethnicity of Applicant or Borrower: 1 (1: Hispanic or Latino) and Ethnicity of Applicant or Borrower: 2 (11: Mexican). If one or more of the six Ethnicity of Applicant or Borrower FIG fields have errors, they would count as one (and only one) error for that data field group. If the Ethnicity of Applicant or Borrower data field group has errors in the Total Sample that meet or exceed the Resubmission Threshold in Column D of the HMDA Table, examiners should direct the institution to correct the six Ethnicity of Applicant or Borrower FIG fields and resubmit its HMDA LAR with those FIG fields corrected.
FIL-36-2017, page 5
“Examiners may direct the financial institution to make any appropriate changes in its policies, procedures, audit processes, or other aspects of its compliance management system needed to prevent the reoccurrence of errors identified within the sample that are—absent such changes—capable of repetition, even if number of errors does not equal or exceed either the Initial Sample Threshold or the Resubmission Threshold.”
(c) Leveraged payment mechanism. For purposes of paragraph (b) of this section, a lender or service provider obtains a leveraged payment mechanism if it has the right to initiate a transfer of money, through any means, from a consumer's account to satisfy an obligation on a loan, except that the lender or service provider does not obtain a leveraged payment mechanism by initiating a single immediate payment transfer at the consumer's request.
iv. Transfer by account-holding institution. A lender or service provider that is an account-holding institution has a right to initiate a transfer of funds between the consumer's account and an account of the lender or affiliate, including, but not limited to, an account-holding institution's right of set-off.
UETA §9 “An electronic record or electronic signature is attributable to a person if it was the act of the person. The act of the person may be shown in any manner, including a showing of the efficacy of any security procedure applied to determine the person to which the electronic record or electronic signature was attributable…determined from the context and surrounding circumstances at the time of its creation, execution, or adoption…”
www.uniformlaws.org
1/3 of all complaints relate to debt collection.
CFPB: 84,500 debt collection complaints.
In 2017: credit card debt rose by $55 billion, student loan debt grew by $68 billion, and auto loan debt grew by $64 billion.
The Consumer Financial Protection Bureau (CFPB or Bureau) seeks information about the small business lending market. Section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) amends the Equal Credit Opportunity Act (ECOA) to require financial institutions to compile, maintain, and report information concerning credit applications made by women-owned, minority-owned, and small businesses. In an effort to inform the Bureau’s work on the business lending data collection rulemaking to implement section 1071, the Bureau seeks to learn more about the small business financing market, including understanding more about the products that are offered to small businesses, including women-owned and minority-owned small businesses, as well as the financial institutions that offer such credit.
Govtrack provides a likelihood of being enacted at 34%