quarterly regulatory update - bai · 2020. 6. 5. · wipfli llp tim is a partner ... accounting,...

11

Quarterly Regulatory Update

Materials from October 2, 2018 through January 3, 2019

Presented by: Tim Tedrick, Partner, CRCM, CRP

Tim Tedrick

Partner

Wipfli LLP

Tim is a partner with the accounting firm of Wipfli LLP Ltd. He

has more than 45 years of experience, the first eleven with a

bank, and the remaining with Wipfli where he headed up the

compliance team. He was the compliance officer, cashier,

security officer and one of the loan officers when he left the

bank. Since then he has performed consultations for various

sized financial institutions in multiple states to help the

institutions prepare for examinations by regulators. A graduate

of the ABA National Graduate Compliance School in Norman,

Oklahoma, he is also a Certified Regulatory Compliance

Manager and a Certified Risk Professional. He has taught at

various state banking schools and has given training sessions

to banks on a regular basis. His firm provides traditional

accounting, audit, tax and consulting services to over 800

financial institutions on an ongoing basis.

2

Wipfli newsletters

November 2018 Community Banking Newsletter

• 2019 Compliance Training Plan – What to Consider – Cindy Mabry

• Can Your Board Do More Then Spell BSA? – Helen Touchton

• Common Flood Violations – Mitigating Your Risks – Shelley Foster

• Does Your BSA/AML Risk Assessment Cover the Bases? – Adam Baker

3

Wipfli newsletters

January 2019 Community Banking Newsletter

• Banking a Marijuana Business – Kristen Ferwerda

• Elder Financial Exploitation: How to Protect Your Most Vulnerable Consumers – Craig Johnson

• Gremlins Changed the System Parameters Again – Teri Downey

• HELOCs – Common Errors Explained – John Moniak

4

BSA

5

Sharing BSA staffing

• Interagency Statement on Sharing Bank Secrecy Act Resources

• October 3, 2018

• Statement to address instances in which banks may decide to enter into collaborative arrangements to share resources to manage their Bank Secrecy Act (BSA) and anti-money laundering (AML) obligations more efficiently and effectively.

6


• Collaborative arrangements as described in this statement generally are most suitable for banks with a community focus, less complex operations, and lower-risk profiles for money laundering or terrorist financing. The risk profile is bank-specific, and should be based on a risk assessment that properly considers all risk areas, including products, services, customers, entities, and geographic locations.

7


• This interagency statement does not apply to collaborative arrangements or consortia formed for the purpose of sharing information under Section 314(b) of the USA PATRIOT Act.

• The cost of meeting BSA requirements and effectively managing the risk that illicit finance poses to the broader U.S. financial system may be reduced through sharing employees or other resources in a collaborative arrangement with one or more other banks.

8


• Internal Controls Example

• Some examples of functions that may be conducted utilizing shared resources include: 1) reviewing, updating, and drafting BSA/AML policies and procedures; 2) reviewing and developing risk-based customer identification and account monitoring processes; and 3) tailoring monitoring systems and reports for the risks posed.

9


• Independent Testing Example

• Some banks may have personnel that perform multiple job functions, making it difficult to identify an employee within the bank to conduct an independent test of the BSA/AML compliance program. Personnel at one bank may be utilized to conduct the BSA/AML independent test at another bank within a collaborative arrangement.

10


• BSA/AML Training Example

• A collaborative arrangement between two or more banks may provide the latitude to hire a qualified instructor to conduct the BSA/AML training, allowing the bank[s] to share the cost.

11


• Other Considerations

• The sharing of a BSA officer among banks could be challenging due to the confidential nature of suspicious activity reports filed and the ability [difficulty] of the BSA officer to effectively coordinate and monitor each bank’s day-to-day BSA/AML compliance.

• Accordingly, it may not be appropriate for banks to enter into a collaborative arrangement to share a BSA officer.

12


• Risk Considerations and Mitigation

• A bank’s board of directors should provide for appropriate oversight of BSA/AML collaborative arrangements in advance. As is standard, a collaborative arrangement should be supported by a contractual agreement between the banks, with the performance reviewed by management and evaluated on a periodic basis. Banks should refer to their respective regulator’s existing guidance regarding third-party relationships.

13

OFAC JP Morgan

• JPMorgan Chase Bank, N.A. Settles Potential Civil Liability for Apparent Violations of Multiple Sanctions Programs: JPMorgan Chase Bank, N.A. (JPMC) has agreed to remit $5,263,171 to settle its potential civil liability for apparent violations involving the processing of 87 net settlement payments with a total value of $1,022,408,149, of which approximately $1,500,000 (0.14%) appears to have been attributable to interests of sanctions-targeted parties,

14

OFAC JP Morgan

• and which therefore appear to have violated one or more of the following sanctions programs administered by OFAC: the Cuban Assets Control Regulations, 31 C.F.R. Part 515 (CACR); the Iranian Transactions and Sanctions Regulations, 31 C.F.R. Part 560 (ITSR); and the Weapons of Mass Destruction Proliferators Sanctions Regulations, 31 C.F.R. Part 544 (WMDPSR).

15

OFAC JP Morgan

• JPMC operated a net settlement mechanism that resolved billings by and among various airlines and other participants in the airline industry on behalf of its client, a U.S. entity and its approximately 100 members, and a non-U.S. entity and its over 350 members. Between approximately January 3, 2008 and February 8, 2012, JPMC processed 87 transactions through the U.S. financial system that may have contained interests attributable to a sanctions-targeted party.

16

OFAC JP Morgan

• Each of the transactions represented a net settlement payment between JPMC’s client and the non-U.S. person entity whose members included among its numerous airline industry participants eight airlines that were at various times on OFAC’s List of Specially Designated Nationals and Blocked Persons (the “SDN List”), blocked pursuant to OFAC sanctions, or located in countries subject to the sanctions programs administered by OFAC.

17

OFAC JP Morgan

• JPMC does not appear to have had, prior to January 2012, a process to independently evaluate the participating member entities of the non-U.S. person entity for OFAC sanctions risk, despite receiving red flag notifications regarding OFAC-sanctioned members on at least three occasions.

18

OFAC JP Morgan

• Separately, JPMorgan Chase & Co. Receives a Finding of Violation Regarding Violations of the Foreign Narcotics Kingpin and Syrian Sanctions Regulations

• Between August 4, 2011 and April 29, 2014, JPMC processed 85 transactions totaling $46,127.04 and maintained eight accounts on behalf of six customers who were contemporaneously identified on the List of Specially Designated Nationals and Blocked Persons (“SDN List”).

19

OFAC JP Morgan

• From approximately 2007 to October 2013, JPMC used a vendor screening system that failed to identify these six customers as potential matches to the SDN List.

• The system’s screening logic capabilities failed to identify customer names with hyphens, initials, or additional middle or last names as potential matches to similar or identical names on the SDN List.

20

OFAC JP Morgan

• Despite strong similarities between the accountholder’s names, addresses, and dates of birth in JPMC account documentation and on the SDN List, JPMC maintained accounts for, and/or processed transactions on behalf of, these six customers.

21

OFAC JP Morgan

• This enforcement action highlights the importance of financial institutions remediating known compliance program deficiencies in an expedient manner, and when that is not possible, the importance of implementing compensating controls to mitigate risk until a comprehensive solution can be deployed.

22

Major change FFIEC BSA InfoBase Website

• Major changes or additions to the FFIEC Web site October 18, 2018

• The FFIEC launched the redesigned (BSA/AML) InfoBase website, which is aimed at sharing bank examination procedure information with examiners, financial institutions, the public, and other stakeholders.

23

Major change FFIEC BSA InfoBase Website

• The FFIEC BSA/AML InfoBase was redesigned to improve the overall experience for users.

• The redesign improves site navigation, enhances search capabilities, provides mobile-friendly capability, and contains new functionality that allows users to download various sections of the FFIEC BSA/AML Examination Manual.

24

Capital One Civil Money Penalty

• Capital One

• CONSENT ORDER

• The Comptroller finds, and the Bank neither admits nor denies, the following:

25


(1) 2015 Consent Order addressed:

(a) The Bank failed to adopt and implement a compliance program that adequately covered the required BSA/AML program elements due to an inadequate system of internal controls and ineffective independent testing, and the Bank failed to file all necessary Suspicious Activity Reports (“SARs”) related to suspicious customer activity

26


(b) Some of the critical deficiencies in the elements of the Bank’s BSA/AML compliance program that resulted in a violation of 12 US.C. § 1818(s)(3)(A) and 12 C.F.R. § 21.21, included the following:

(i) the Bank lacked an enterprise-wide BSA/AML risk assessment;

(ii) the Bank had systemic deficiencies in its transaction monitoring systems, risk management, and quality assurance programs for its remote deposit capture services;

27


(iii) the Bank had systemic deficiencies in its customer due diligence processes and failed to have customer due diligence and enhanced due diligence policies and processes specific to Correspondent Banking; and

(iv) the Bank lacked a process by which BSA/AML control decisions are escalated to Risk Management.

28


(c) The Bank failed to identify significant volumes of suspicious activity and file the required SARs concerning suspicious customer activities, in violation of 12 C.F.R. § 21.11.

(2) The Bank conducted look-backs pursuant to the 2015 Consent Order and related supervisory activities and, as a result, had to file additional SARs which constituted additional violations of 12 C.F.R. § 21.11.

29


(3) The Bank failed to timely achieve compliance with the 2015 Consent Order (from July 1, 2016 to July 6, 2017) in violation of the Order.

(4) Subsequent to the issuance of the 2015 Consent Order, the Bank failed to file additional SARs in violation of 12 C.F.R. § 21.11 and initiated wire transfer transactions which contained inadequate or incomplete information in violation of 31 C.F.R. §1010.410(f)(1).

30


• ORDER FOR A CIVIL MONEY PENALTY

• The Bank shall make payment of a civil money penalty in the total amount of one hundred million ($100,000,000) which shall be paid upon the execution of this Order.

31

FinCEN SAR Leaks

• UNITED STATES OF AMERICA - v. -NATALIE MAYFLOWER SOURS EDWARDS

• From at least in or about October 2017, up to and including in or about October 2018, NATALIE MAYFLOWER SOURS EDWARDS, a/k/a "Natalie Sours," a/k/a "Natalie May Edwards," a/k/a "May Edwards," the defendant, an employee of a federal government authority, willfully violated subchapter II of Title 31

32

FinCEN SAR Leaks

• By disclosing Suspicious Activity Reports ("SARs"), and information that would reveal the existence of a SAR, which disclosure was not necessary to fulfill EDWARDS's official duties, to wit, EDWARDS knowingly disclosed and described SARs, which she obtained by virtue of her position as a Senior Advisor at the United States Department of Treasury, Financial Crimes Enforcement Network ("FinCEN"), including by electronically sending images of such SARs to a member of the news media ("Reporter-1") via an encrypted application.

33

FinCEN SAR Leaks

• Treasury-OIG agents have identified a pattern of unauthorized disclosures of SAR information appearing in the media starting in or about October 2017 and continuing until in or about the present (collectively, the "SARs Disclosures").

34

FinCEN SAR Leaks

• Each of the SARs Disclosures related to matters relevant to investigations being conducted by the Office of the Special Counsel, the United States Attorney's Office for the Southern District of New York, and/or the National Security Division of the United States Department of Justice, such as suspicious transactions relating to Paul Manafort, Richard W. Gates, Russian diplomatic accounts, and other matters.

35

FATF Advisory Oct 2018

• On October 19, 2018, the Financial Action Task Force (FATF) updated its list of jurisdictions with strategic anti-money laundering and combatting the financing of terrorism (AML/CFT) deficiencies. The changes may affect U.S. financial institutions’ obligations and risk-based approaches with respect to relevant jurisdictions.

36

FATF Advisory Oct 2018

• FATF “Public Statement”:

• DPRK and Iran

⚫ FATF “Improving Global AML/CFT Compliance: On-going Process”:• Remaining on list: Ethiopia, Pakistan, Serbia, Sri Lanka, Syria,

Trinidad and Tobago, Tunisia, and Yemen

• Added to list: The Bahamas, Botswana, and Ghana

37

Professional Money Laundering Venezuelan State-Owned Oil Company

• Wednesday, July 25, 2018

• Two alleged participants in a billion-dollar international scheme to launder funds embezzled from Venezuelan state-owned oil company PDVSA using Miami, Florida real estate and sophisticated false-investment schemes were arrested yesterday and today.

38


• According to the criminal complaint, the conspiracy in this case allegedly began in December 2014 with a currency exchange scheme that was designed to embezzle around $600 million from PDVSA, obtained through bribery and fraud, and the defendants’ efforts to launder a portion of the proceeds of that scheme. By May 2015, the conspiracy had allegedly doubled in amount to $1.2 billion embezzled from PDVSA. PDVSA is Venezuela’s primary source of income and foreign currency (namely, U.S. Dollars and Euros).

39


• The charges contained in the complaint are merely allegations and all defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

40


• Monday, October 29, 2018

• The former managing director and vice chairman of a Swiss bank was sentenced to 10 years in prison today, after previously pleading guilty for his role in a billion-dollar international scheme to launder funds embezzled from Venezuelan state-owned oil company Petróleos de Venezuela, S.A. (PDVSA).

41


• Matthias Krull, 44, a German national and Panamanian resident, pleaded guilty to one count of conspiracy to commit money laundering, on Aug. 22. U.S. District Judge Cecilia M. Altonaga of the Southern District of Florida sentenced Krull to serve 120 months in prison, to be followed by three years of supervised release. Judge Altonaga also ordered Krull to pay a fine in the amount of $50,000 and a forfeiture money judgment of $600,000.

42


• As part of his plea, Krull admitted that in his position with the Swiss bank, he attracted private clients, particularly clients from Venezuela, to the bank.

• Krull admitted that the conspiracy began in December 2014 with a currency exchange scheme that was designed to embezzle around $600 million from PDVSA, obtained through bribery and fraud and the conspirators’ efforts to launder a portion of the proceeds of that scheme.

43


• By May 2015, the conspiracy had doubled in amount to $1.2 billion embezzled from PDVSA. PDVSA is Venezuela’s primary source of income and foreign currency (namely, U.S. Dollars and Euros). Krull joined the conspiracy in or around 2016, he admitted, when a co-conspirator contacted him to launder the proceeds of a PDVSA foreign-exchange embezzlement scheme.

44


• Ultimately, Krull joined the conspiracy to launder $1.2 billion worth of funds that were embezzled from PDVSA, he admitted. Krull and members of the money laundering conspiracy used Miami, Florida real estate and sophisticated false-investment schemes to conceal that the $1.2 billion was in fact embezzled from PDVSA.

45


• Krull also admitted that surrounding and supporting these false-investment laundering schemes are complicit money managers, brokerage firms, banks and real estate investment firms in the United States and elsewhere, operating as a network of professional money launderers.

46


• Wednesday, October 31, 2018

• A former executive director at the Venezuelan state-owned oil company, Petróleos de Venezuela, S.A. (PDVSA), pleaded guilty today for his role in a billion-dollar international scheme to launder funds embezzled from PDVSA.

• As part of his plea, Ortega admitted that in his position with PDVSA, he accepted $5 million in bribes to give priority loan status to a French company and a Russian bank, which were both minority shareholders in joint ventures with PDVSA.

47


• Ortega admitted that he worked with a co-defendant to launder $12 million that he received as bribe payments.

• Ortega admitted that he and his co-defendant laundered $12 million through a sophisticated false-investment scheme that received money from a payment made to look like an investment into a fund, but, in fact, the payment was actually laundered out of the fund.

48


• Surrounding and supporting this false-investment laundering scheme were complicit money managers, brokerage firms, banks and real estate investment firms in the United States and elsewhere, operating as a network of professional money launderers, Ortega admitted

49

FFIEC Joint Statement – PFAC Cyber-Related Sanctions Program

• The Federal Financial Institutions Examination Council (FFIEC) members developed this statement to alert financial institutions to recent actions taken by the Department of Treasury’s (Treasury) Office of Foreign Assets Control (OFAC) under OFAC’s Cyber-Related Sanctions Program and to the potential impact that sanctions may have on financial institutions’ operations, including the use of services of a sanctioned entity.

50


• OFAC implemented the Cyber-Related Sanctions Program on April 1, 2015, in response to Executive Order 13694 and a related declaration of a national emergency to address the unusual and extraordinary threat to the national security, foreign policy, and economy of the United States caused by the increasing prevalence and severity of malicious cyber-enabled activities originating from, or directed by, entities located, in whole or in substantial part, outside the United States.

51


• Some of the sanctioned entities claim that they are U.S.-based and offer services to financial institutions.

• Financial institutions should ensure that their OFAC compliance and risk management processes address the challenges arising from possible interactions with a sanctioned entity.

• Continued use of products and services from a sanctioned entity may cause the financial institution to violate OFAC sanctions.

52


• In addition to the violation of an OFAC sanction, continued use of software and technical services from a sanctioned entity may increase cybersecurity risk for a financial institution. Security software often operates within sensitive areas of an organization’s infrastructure to identify vulnerabilities, ensure data is protected, or block malware.

53

FinCEN Reissues Real Estate Geographic Targeting Orders and Expands Coverage• November 15, 2018

• The Financial Crimes Enforcement Network (FinCEN) today announced the issuance of revised Geographic Targeting Orders (GTOs) that require U.S. title insurance companies to identify the natural persons behind shell companies used in all-cash purchases of residential real estate. The purchase amount threshold, which previously varied by city, is now set at $300,000 for each covered metropolitan area. FinCEN is also requiring that covered purchases using virtual currencies be reported.

54

FinCEN Reissues Real Estate Geographic Targeting Orders and Expands Coverage• Today’s GTOs cover certain counties within the following major

U.S. metropolitan areas: Boston; Chicago; Dallas-Fort Worth; Honolulu; Las Vegas; Los Angeles; Miami; New York City; San Antonio; San Diego; San Francisco; and Seattle.

• The terms of this Order are effective beginning November 17, 2018 and ending on May 15, 2019

55

Hemp Farming Legalized

• On December 20, 2018, the President approved the Farm Bill, which included legalization of the cultivation of hemp, a variety of cannabis that does not produce the psychoactive component of marijuana, for agricultural purposes. The bill officially removed hemp from the federal list of controlled substances and allows it to be sold as an agricultural commodity.

56


• What does this mean for financial institutions? Because farmers may now legally grow hemp for purposes other than research, the door is opened for financial institutions to offer products and services to previously unbanked entities.

• It should be noted that while hemp farming has been legalized, it does not mean the industry is unregulated. The USDA maintains regulatory oversight over farmers, monitoring to ensure they do not illegally grow hemp that has THC levels (the mood-changing properties of marijuana) above the legal limit.

57


• Financial institutions that wish to bank hemp farmers should treat the entity in accordance with the risk profile of the institution for higher-risk entities. Appropriate due diligence should be conducted to ensure the entity is compliant with all state and federal regulatory requirements. The entity should also be monitored to ensure the activity in the account is commensurate with the anticipated activity.

58


• Wipfli LLP can assist your financial institution with implementing a risk-based monitoring program for hemp farmers and other high-risk entities.

Questions? Please contact Robin Guthridge by email at [email protected] or by phone at 815.265.6895

59

mailto:[email protected]

BSA to do list

• Evaluate your present BSA systems and determine whether any weak points could be strengthened through a collaborative arrangement; if so work with management and the board to decide whether a viable collaborative arrangement partner is available

• Go through your identified program deficiencies again and double check remediation or the implementing compensating controls

• Use the Edwards case as a training example for the importance of SAR confidentiality

60

BSA to do list

• Add the Bahamas, Botswana and GHANA to your list of countries with money laundering or terrorist financing concerns

• Consider the complexities of professional money launderers as you perform you CDD and EDD and SAR investigations

• Ensure your OFAC procedures include elements addressing the cyber-related sanctions

61

BSA to do list

• If you are in one of the areas that is subject to real estate geographic targeting orders, make sure you have that risk built into your risk assessment and your CDD/EDD procedures

62

6363

Loans

64

Public Law 115-232 SCRA amendment Aug 2018

• This Act may be cited as the ‘‘John S. McCain National Defense Authorization Act for Fiscal Year 2019’’

• DIVISION A—DEPARTMENT OF DEFENSE AUTHORIZATIONS

• TITLE V—MILITARY PERSONNEL POLICY

• Subtitle J—Miscellaneous Reports and Other Matters

• Sec. 600. Proof of period of military service for purposes of interest rate limitation under the Servicemembers Civil Relief Act.

65


• Date Actions Overview

• 08/03/2018 Presented to President.

• 08/13/2018 Signed by President.

• 08/13/2018 Became Public Law No: 115-232.

66


• SEC. 600. PROOF OF PERIOD OF MILITARY SERVICE FOR PURPOSES OF INTEREST RATE LIMITATION UNDER THE SERVICEMEMBERS CIVIL RELIEF ACT.

• Section 207(b)(1) of the Servicemembers Civil Relief Act (50 U.S.C. 3937(b)(1)) is amended to read as follows:

• ‘‘(1) PROOF OF MILITARY SERVICE.—

67


• ‘‘(A) IN GENERAL.—Not later than 180 days after the date of a servicemember’s termination or release from military service, in order for an obligation or liability of the servicemember to be subject to the interest rate limitation in subsection (a), the servicemember shall provide to the creditor written notice and a copy of—

68


• ‘‘(i) the military orders calling the servicemember to military service and any orders further extending military service; or

• ‘‘(ii) any other appropriate indicator of military service, including a certified letter from a commanding officer.

69


• ‘‘(B) INDEPENDENT VERIFICATION BY CREDITOR.—

• ‘‘(i) IN GENERAL.—A creditor may use, in lieu of notice and documentation under subparagraph (A), information retrieved from the Defense Manpower Data Center through the creditor’s normal business reviews of such Center for purposes of obtaining information indicating that the servicemember is on active duty.

70


• ‘‘(ii) SAFE HARBOR.—A creditor that uses the information retrieved from the Defense Manpower Data Center under clause (i) with respect to a servicemember has not failed to treat the debt of the service-member in accordance with subsection (a) if—

• ‘‘(I) such information indicates that, on the date the creditor retrieves such information, the servicemember is not on active duty; and

71


• ‘‘(II) the creditor has not, by the end of the 180-day period under subparagraph (A), received the written notice and documentation required under that subparagraph with respect to the servicemember’’.

72

2019 HMDA FIG

• Filing instructions guide for HMDA data collected in 2019

• 170 pages

73

2019 HMDA FIG

74

2019 HMDA FIG

75

CRA Nationwide Summary Statistics for 2017

• Findings from Analysis of Nationwide Summary Statistics for 2017 Community Reinvestment Act Data Fact Sheet

• General Description of the 2017 CRA Small Business and Small Farm Loan Data

• For 2017, a total of 718 lenders reported data about originations and purchases of small loans (loans with original amounts of $1 million or less) to businesses and farms, representing a 1.1 percent decrease from the 726 lenders reporting data for 2016

76


• Of the 718 institutions reporting 2017 data, 177 had assets below the mandatory reporting threshold and reported either voluntarily or because they elected to be evaluated as a “large” institution during CRA examinations.

• CRA reporters account for about 72 percent of small business loans outstanding (by dollars) and about 30 percent of small farm loans outstanding (by dollars) at bank and thrift institutions.

77


• During 2017, banks and thrifts with assets of $1.226 billion or more (as of December 31, 2016) accounted for almost 97 percent (by dollars) of reported small business loan originations

• 114 reporters with assets of $10 billion or more – accounted for about 69 percent of CRA reported small business loans originated in 2017

78


• Loans to Smaller Businesses and Farms

• The CRA data include information about loans to businesses or farms with revenues of $1 million or less. Overall, about 52 percent of the number of reported small business loan originations (about 37 percent measured by dollar amount of loans) and 58 percent of the number of reported small farm loan originations (about 70 percent measured by dollar amount of loans) were extended to farms with revenues of $1 million or less.

79


• Community Development Lending

• Institutions reporting CRA data disclose the number and dollar amount of their community development loans. Among the 718 institutions reporting for 2017, 632 institutions reported community development lending activity.

80

FHFA Announces Maximum Conforming Loan Limits for 2019

• The Federal Housing Finance Agency (FHFA) today announced the maximum conforming loan limits for mortgages to be acquired by Fannie Mae and Freddie Mac in 2019. In most of the U.S., the 2019 maximum conforming loan limit for one-unit properties will be $484,350, an increase from $453,100 in 2018.

81


• Threshold for “jumbo” loans. Section 1026.35(a)(1)(ii) provides a separate threshold for determining whether a transaction is a higher-priced mortgage loan subject to section 1026.35 when the principal balance exceeds the limit in effect as of the date the transaction's rate is set for the maximum principal obligation eligible for purchase by Freddie Mac (a “jumbo” loan).

82


• The Federal Housing Finance Agency (FHFA) establishes and adjusts the maximum principal obligation pursuant to rules under 12 U.S.C. 1454(a)(2) and other provisions of Federal law. Adjustments to the maximum principal obligation made by FHFA apply in determining whether a mortgage loan is a “jumbo” loan to which the separate coverage threshold in section 1026.35(a)(1)(ii) applies.

83

LEI Required for ALL HMDA Submissions

• LEI Required for ALL HMDA Submissions

• If you thought that because you were eligible for the partial HMDA exemption, you could avoid the annual renewal process and fee for the Legal Entity Identifier (LEI), think again! For LARs filed in 2019 and beyond, Section 1003.5(a)(3)(vii) (effective January 1, 2019) requires financial institutions to report their LEI instead of the former respondent ID as part of the annual submission; therefore, all banks and credit unions subject to HMDA reporting must keep their LEI registrations current.

84


• Whether you are eligible for the partial exemption or not, be sure that someone at your financial institution is tracking when your LEI is scheduled to expire and that procedures are in place to submit your renewal prior to each expiration date. If your renewal date has already passed, you may find yourself in a lapsed status. We recommend verifying that your LEI is active and, if not, taking steps to have it reactivated so you are ready for your March 1, 2019, LAR submission.

85


• If you have questions about the information above, please contact your relationship executive or email Cindy Mabry at [email protected].

86

BCFP State Farm Bank FCRA Consent Order

• The Bureau of Consumer Financial Protection (Bureau) announced a settlement with State Farm Bank, FSB, a federal savings association headquartered in Bloomington, Ill.

87


• As described in the consent order, the Bureau found that State Farm Bank violated the Fair Credit Reporting Act, Regulation V, and the Consumer Financial Protection Act of 2010 by obtaining consumer reports without a permissible purpose; furnishing to credit-reporting agencies (CRAs) information about consumers’ credit that the bank knew or had reasonable cause to believe was inaccurate;

88


• failing to promptly update or correct information furnished to CRAs; furnishing information to CRAs without providing notice that the information was disputed by the consumer; and failing to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of information provided to CRAs.

89


• Respondent has consented to the issuance of this Consent Order by the Bureau without admitting or denying any of the findings of fact or conclusions of law, except that Respondent admits the facts necessary to establish the Bureau’s jurisdiction over Respondent and the subject matter of this action

90


• Respondent does not maintain retail bank branches, but markets and offers its bank products through a network of bank-certified agents of State Farm Mutual Automobile Insurance Company (Agents), who are independent contractors, and bank-certified agent team members (Team Members), who are employed by the Agents.

• The majority of Respondent’s business is from consumer credit cards and vehicle loans, many of which are loans to refinance existing vehicle loans.

91


• A consumer report is automatically obtained when a credit application is submitted for a credit card or vehicle loan, and Respondent has certified to CRAs that it uses the report in connection with a credit transaction with the consumer on whom the information is sought.

92


• Findings and Conclusions as to Violations of § 604(f) of FCRA

• Section 604(f) of FCRA mandates that consumer reports be used or obtained only for permissible purposes

93


• In certain instances, Respondent obtained consumer reports of consumers who were not seeking an extension of credit from or involved in any form of credit transaction, account review, or account collection with Respondent, and Respondent had no other permissible purpose for the consumer reports it obtained.

94


• In some instances, Respondent’s Agents and Team Members initiated credit applications for the wrong consumer by incorrectly inputting consumer information into Respondent’s application system or by selecting the wrong consumer from a list of possible consumers identified in the system. When Agents and Team Members initiated applications in error, Respondent obtained a consumer report and generated a credit inquiry for the wrong consumer—not the consumer who had applied for the credit product.

95


• In certain instances when the consumer had neither applied for a loan nor authorized Respondent to obtain a consumer credit report, Agents and Team Members initiated vehicle-loan applications for consumers for the purpose of soliciting those consumers, thereby triggering a credit inquiry.

96


• Findings and Conclusions as to Violations of §623(a)(1)(A) of FCRA

• Section 623(a)(1)(A) of FCRA prohibits a furnisher from furnishing any information relating to a consumer to any CRA if the furnisher knows or has reasonable cause to believe that the information is inaccurate.

97


• In some instances, Respondent furnished inaccurate information to CRAs, including furnishing account information for the wrong consumer, reporting current accounts as delinquent, and reporting inaccurate payment histories and past-due amounts, even though the identities of existing customers and their account-payment information were in Respondent’s records.

98


• Respondent knew or had reasonable cause to believe that the furnished information was inaccurate because the furnished information was in direct conflict with the consumer information contained in Respondent’s credit applications, loan files, or payment system-of-record.

• Respondent did not clearly and conspicuously specify to consumers an address at which consumers could notify it that furnished information was inaccurate.

99


• Findings and Conclusions as to Violations of § 623(a)(2) of FCRA

• Section 623(a)(2) of FCRA requires any person who regularly and in the ordinary course of business furnishes information to a CRA and who has furnished information that the person determines is not complete or accurate to promptly notify the CRA and provide corrections to make the information complete and accurate.

100


• In some instances, after determining that information it furnished to a CRA was not complete or accurate, Respondent, often through a service provider, took multiple months to correct the incomplete or inaccurate information.

101


• Findings and Conclusions as to Violations of § 623(a)(3) of FCRA

• Under Section 623(a)(3) of FCRA, if the completeness or accuracy of any information furnished by a furnisher to any CRA is disputed to the furnisher by a consumer, the furnisher may not furnish the information to any CRA without notice that the information is disputed by the consumer.

102


• In certain instances when consumers disputed information, Respondent, often through a service provider, furnished the information to CRAs without providing notice to the CRAs that the consumer disputed the information.

103


• Findings and Conclusions as to Violations of Regulation V

• Regulation V requires furnishers to “establish and implement reasonable written policies and procedures regarding the accuracy and integrity of the information relating to consumers that it furnishes to a consumer reporting agency.”

104


• Respondent’s written policies and procedures regarding the accuracy and integrity of the consumer information that it furnishes to CRAs were inadequate given the high volume and complexity of Respondent’s furnishing activities and were not reasonable or appropriate given the nature, size, complexity, and scope of Respondent’s activities.

105


• From 2012 until about September 2016, Respondent’s FCRA-related policies and procedures consisted of general statements setting forth the roles and responsibilities of various personnel with respect to compliance with FCRA without delineating specific guidance for complying with FCRA or setting forth processes regarding the accuracy and integrity of information furnished to CRAs.

106

National Flood Insurance Program Reauthorization

• Congress must periodically renew the NFIP’s statutory authority to operate. On Dec. 21, 2018, the President signed legislation passed by Congress that extends the National Flood Insurance Program’s (NFIP’s) authorization to May 31, 2019.

107

Making loans when flood insurance program is unavailable

• The federal bank regulatory agencies remind banks, savings associations, and Farm Credit System institutions that they can continue to make loans during periods when the National Flood Insurance Program (NFIP) administered by the Federal Emergency Management Agency (FEMA) is unavailable. The attached guidance issued in 2010 is generally applicable whenever the NFIP is unavailable.

108


• As explained in the guidance, lenders may continue to make

loans subject to the federal flood insurance statutes without

flood insurance during a period when the NFIP is not available.

However, lenders must continue to make flood determinations,

provide timely, complete, and accurate notices to borrowers,

and comply with other parts of the flood insurance regulations.

In addition, lenders must evaluate safety and soundness and

legal risks and prudently manage those risks during the lapse

period.

• https://www.federalreserve.gov/newsevents/pressreleases/bcre

g20181228a.htm

109


• FIL-23-2010 May 7, 2010

• Do regulated institutions still have to make flood hazard determinations during a lapse?

• Yes, during a lapse you must continue to make standard flood hazard determinations and you also must give borrowers the notice of special flood hazards and availability of federal disaster relief, if applicable, as required by 12 C.F.R. Part 339.

110


• Why does retroactivity matter?

• If NFIP authorization is not retroactive, new or renewal policies

cannot be obtained for the period when the program was not

authorized unless they were obtained prior to the lapse. Thus,

if authorization is not provided retroactively, new policies or

renewals issued after the lapse will be effective on the date of

reauthorization at the earliest. In this situation, flood losses will

not be covered by the NFIP if they occur in the period

subsequent to the lapse but before the date of Congressional

reauthorization. Lenders are encouraged to ensure borrowers

understand this risk.

111


• FEMA has stated that if the authorization is retroactive, a flood insurance policy applied and paid for during the lapse period will be deemed effective as of the date of application and payment. In other words, retroactive application of FEMA flood insurance authority to cover the lapse period will provide coverage in the event of a flood between the start of the lapse and the date of reauthorization for those borrowers who apply and pay for NFIP flood insurance during the lapse.

112


• What are my options regarding new loans that will be affected by a lapse?

• You may make the loan without requiring the borrower to apply for flood insurance and pay the premium pending reauthorization. However, this option poses a number of risks that should be carefully evaluated. Moreover, if Congress reauthorizes the NFIP after a lapse, the FDIC expects that flood insurance will be obtained for these loans, including, if necessary, by forced placement, as provided for in 12 C.F.R. §339.7.

113


• Before making such loans, you should ensure borrowers are aware of the flood insurance requirements and that force-placed insurance is typically more costly than borrower-obtained insurance. You also should have a system to identify these loans to ensure that insurance is purchased if the NFIP is reauthorized subsequent to closing.

114

TRID Challenge

• Email received

• We did your webinar TRID Clarifications, Corrections, and Technical Amendments https://www.wipfli.com/insights/webinars/fi-180726-trid-claifications-corrections-and-technical-webinar but we still are confused on what is truly needed in the AP table.

115

TRID Challenge

• This loan is a fixed rate construction loan 6 months with interest only payments. $170,000.00 at 2.90%. We are not sure on the Maximum payment; should that only be the $205.42 or the max as interest only could go as high as $411?

116

TRID Challenge

• Our LOS is disclosing this on Loan Estimate

117

TRID Challenge

• Our form vendor is disclosing this based on the $205.42 that is disclosed as payment (1/2) as assumption being half loan would be advanced on the CD as well as the First Change/Amount.

• The LE is correct, the CD is incorrect.

118

FDIC on open-end

• Lines of Credit—Finance Charge Calculation and Disclosure

• Issues Involving the Balance Used to Calculate the Finance Charge

• While balance determination methods vary by institution, many line of credit agreements state that unpaid finance charges are subtracted when deter-mining the balance upon which the finance charge (interest) will be calculated.

119

FDIC on open-end

• However, a review of periodic statements at some institutions revealed that, when closing costs were paid for by an advance on the line, they were included in the balance used to determine the finance charge. Some of these closing costs may be “finance charges” under Regulation Z, such as loan origination fees, life-of-loan flood determination fees, tax service fees, etc.

120

FDIC on open-end

• Issues Involving the Finance Charge Disclosure for Start-Up Fees

• Keep in mind, for home equity plans subject to the requirements of Section 1026.40 of Regulation Z, creditors have two options for disclosing finance charges in periodic statements.

• 1. Under Section 1026.7(a), the creditor must dis-close and itemize the amount of any finance charge debited or added to the account during the billing cycle, using the term “finance charge.”

121

FDIC on open-end

• 2. Under Section 1026.7(b), the creditor is not required to use the term “finance charge.”

• Finance charges attributable to the periodic interest rate are disclosed using the term “Interest Charge.”

122

FDIC on open-end

• Corrective Action

• Correcting or updating system parameters to match disclosures and agreements. If changing system parameters is not feasible, the institution may choose to collect closing costs in cash (rather than financing the fees through an advance) or, when permissible, follow applicable regulatory requirements for providing revised disclosures to consumers.

123

FDIC on open-end

• Determining whether enhancements to the institution’s compliance management system are necessary, such as providing staff training and strengthening monitoring of system parameters to ensure consistency with account disclosures.

• Identifying all adversely affected consumers and providing appropriate restitution in a timely manner.

124

Loans to do list

• Update your SCRA procedures regarding proof of active duty

• If you are a HMDA reporter, download your copy of the filing instructions guide for data collected in 2019 and read through the changes

• If you are a CRA reporter and have not yet done so, analyze your small business and small farm loan data for holes

• Update your Regulation Z jumbo loan threshold for HPML coverage

125

Loans to do list

• If you are a HMDA reporter, be sure to keep your LEI registration current

• Review and retrain on the permissibility standards for pulling a credit bureau report. Consider implementing a control to verify permissibility

• Consider verifying your processes for ensuring accuracy in reporting to credit bureaus, dispute resolutions, and written Regulation V polices and procedures

126

Loans to do list

• Save off a copy of the flood insurance guidance to have available each time the reauthorization expires

• Verify your finance charge calculations and disclosures are correct. Take action to resolve if they are not.

127127

Deposits

128

Deposits to do list

⚫No deposit related items

129129

UDAAP

130

BCFP Santander Auto Loan Settlement

• CONSENT ORDER

• The Bureau of Consumer Financial Protection (Bureau) has reviewed certain lending and marketing practices of Santander Consumer USA Inc. (Respondent, as defined below) and has identified the following law violations: (1) Respondent engaged in deceptive acts or practices in marketing its S-GUARD GAP add-on product, in violation of sections 1031 and 1036 of the Consumer Financial Protection Act of 2010 (CFPA),

131


• (2) Respondent misrepresented to consumers the impact of receiving a loan extension, including by obscuring that the additional interest accrued during the extension period would be paid before any payments to principal when the consumer resumed making payments, in violation of sections 1031 and 1036 of the CFPA

132


• Respondent has consented to the issuance of this Consent Order by the Bureau without admitting or denying any of the findings of fact or conclusions of law, except that Respondent admits the facts necessary to establish the Bureau’s jurisdiction over Respondent and the subject matter of this action.

133


• “S-GUARD GAP” means the optional financial product that Respondent offered to consumers in connection with auto loans, which purported to “fill the gap” between the primary insurance payout and the outstanding amount of the auto loan in the event that the vehicle is a total loss, and any similar guaranteed-asset-protection product offered by Respondent under any name.

134


• Findings and Conclusions as to Respondent’s Misrepresentations Regarding S-GUARD GAP

• Respondent also used the following language to market S-GUARD GAP: “Your auto insurance may be inadequate to protect you financially in case of a total loss through accident or theft. If your loan balance is greater than the current cash value of your car, GAP (Guaranteed Asset Protection) can be a great way to protect you. Your insurance payout could end here. GAP takes care of the rest.”

135


• Respondent’s S-GUARD GAP was actually subject to a loan-to-value (LTV) limitation of 125%. If, at the time of purchase, the consumer’s loan exceeded 125% of the vehicle’s value—a value determined by the smallest of three potential values—Respondent would exclude that difference from any S- GUARD GAP proceeds.

136


• In those situations, Respondent’s S-GUARD GAP may not cover the consumer’s outstanding auto loan balance in the event that a consumer suffered a total loss of his or her vehicle and the consumer’s primary auto insurance was insufficient to cover the entire outstanding loan balance.

• Respondent did not inform GAP Consumers at any time whether the LTV limitation applied to them.

137


• Findings and Conclusions as to Respondent’s Misrepresentations Regarding Extensions

• During the Extension Relevant Period, Respondent offered Extensions through outbound telephone calls to consumers who had missed at least one payment on their auto loans. These outbound telephone calls were conducted by customer call representatives, whom Respondent directed to adhere to scripts that Respondent developed.

138


• Respondent’s scripts directed customer call representatives explaining the terms of Extensions to consumers to tell consumers that the loan maturity date would be extended and that “interest would continue to accrue.”

• Respondent’s scripts further instructed call representatives that an Extension “mov[es] one or more monthly payments to the end of the loan.” Respondent’s customer call representatives then told consumers that the missed payments would be “moved to the end of the loan.”

139


• In Respondent’s written Deferment and Extension Agreements provided to certain consumers, Respondent stated that it will “extend the maturity date of [the consumer’s] Contract for the same number of months” as the months that Respondent extended the loan. In fact, the Extension Consumers would have to continue to pay back their loans beyond the number of months extended due to the interest accrued on the principal during the extension period.

140


• Respondent’s customer call representatives did not disclose how principal and interest would be allocated in payments following the extension period. Respondent’s customer call representatives told consumers that payments, once resumed at the end of the extension period, would remain the same as before.

141


• Respondent’s scripts for offering Extensions stated that “interest would continue to accrue,” but Respondent failed to explain to consumers when that interest would be paid or that the interest accrued during the extension period would have to be paid off in full before the consumer would be able to pay down any principal, resulting in slower principal reduction and more interest paid, even if the consumer made timely payments, over the life of the loan.

142


• Respondent’s customer call representatives did not disclose to Extension Consumers before enrollment the additional amount of interest that consumers would have to pay over the life of the loan by entering into Extensions.

143


• Respondent’s call representatives told consumers that interest continued to accrue during the Extension and that the loan maturity date would be extended, which likely created the misimpression that the interest would not be paid immediately upon a consumer’s next scheduled payment. In fact, the next payment the consumer made would first be applied to the interest accrued on the unpaid amount financed from the date Respondent last received a payment from the consumer.

144


• During the Extension Relevant Period, Respondent has enrolled consumers into more than 2.3 million Extensions.

• Within 10 days of the Effective Date, Respondent must reserve or deposit into a segregated deposit account $1,980,873, for the purpose of providing restitution paid by check as described in paragraph 46 to Affected Consumers as required by this Section.

145


• The Redress Plan must:

• Require Respondent to provide restitution to the approximately 3,493 accounts of Affected Consumers, estimated to be $1,980,873 in payments by check and $7,312,953 in statement credits

• Respondent must pay a civil money penalty of $2,500,000 to the Bureau.

146

UDAAP to do list

• Re-verify your GAP insurance or other insurance marketing materials are accurate and specifically determine the impact and disclosure of any LTV limitations

• Re-evaluate the operation of your loan payment extensions for consumer loans including those for “holiday” payment deferrals

147147

MISCELLANEOUS

148

CFPB fall 2018 rulemaking agenda

• Fall 2018 rulemaking agenda October 17, 2108

• The Bureau is … in the process of implementing various provisions in the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) which was signed into law in May 2018, and of conducting its first assessments of the effectiveness of prior “significant” Bureau rulemakings as required by section 1022(d) of the Dodd-Frank Act.

149


• In addition, the Bureau is analyzing more than 86,000 comments received in response to its “Call for Evidence” initiative seeking feedback on Bureau operations and regulations.

150


• Some provisions of EGRRCPA do not require Bureau rulemaking to take effect (e.g., sections 101, 104, 106, 107, 109(a), 301, 601). Even though Bureau rulemaking is not required for these provisions to take effect, the Bureau has noted in the Unified Agenda that notice-and-comment rulemaking may be helpful to better implement or clarify these provisions.

151


• The Bureau has adjusted its timeline for implementing the statutory directive contained in section 1071 of the Dodd-Frank Act which amended the Equal Credit Opportunity Act (ECOA) to require financial institutions to collect, report, and make public certain information concerning credit applications made by women-owned, minority-owned, and small businesses. The Bureau has now reclassified the section 1071 project from pre-rule status to longer-term action status.

152


• Prior to the enactment of the EGRRCPA, the Bureau had already put a rulemaking on its Spring 2018 Agenda to reconsider aspects of its 2015 rulemaking to implement Dodd-Frank Act amendments to HMDA, including but not limited to the threshold for collecting and reporting HMDA data with respect to open-end lines of credit.

153


• In addition, the Bureau anticipates engaging in notice-and-comment rulemaking to incorporate the EGRRCPA interpretative and procedural rule mentioned above into Regulation C and to further implement ERGGCPA. The Bureau expects to issue a Notice of Proposed Rulemaking in Spring 2019 to address some or all of the issues related to these HMDA projects.

154


• Agency Rule List - Fall 2018

• Consumer Financial Protection Bureau

155


• Agency Rule List - Fall 2018 Long Term

• Consumer Financial Protection Bureau

156


• Inactive Rule

157

BCFP 50 state report complaint snapshot

• Complaint snapshot:

• 50 state report

158


159


160


161


162

OCC Fall 2018 semiannual-risk-perspective

• Semiannual Risk Perspective

• The OCC’s Semiannual Risk Perspective addresses key issues facing banks, focusing on those that pose threats to the safety and soundness of banks and their compliance with applicable laws and regulations. This report presents data in five main areas: the operating environment, bank performance, special topics in emerging risks, trends in key risks, and supervisory actions.

163


• Compliance Risk Remains Elevated as Banks Seek to Manage Money- Laundering Risks and Comply With Amended Consumer Protection Requirements

• The underlying technology that supports innovation in fintech and regtech and development of product and service solutions may also be used to facilitate illicit activity, thereby increasing BSA/AML and OFAC risk exposure.

164


• The OCC expects banks to be aware of regulatory changes and to have made changes to systems to comply with the new regulatory requirements. One such change is the Financial Crimes Enforcement Network’s Customer Due Diligence/Beneficial Ownership regulation, implemented in May 2018. Necessary updates to training, quality assurance, independent testing, and controls also are expected to be in place.

165


• The recently published “Interagency Statement on Sharing Bank Secrecy Act Resources,” available at OCC Bulletin 2018-36, addresses instances in which banks may decide to enter into collaborative arrangements to share resources in order to manage their BSA/AML compliance obligations more efficiently and effectively.

166


• The OCC is monitoring the risks as banks increasingly explore and implement artificial intelligence, machine learning, and other innovative technologies in BSA/AML systems. It is important for banks to employ sound due diligence and validation practices when assessing and implementing technology solutions to perform or enhance BSA/AML compliance functions.

167


• Banks Face Compliance Challenges From Inside and Outside the Industry

• Fair lending risk may increase as banks attempt to increase efficiency and effectiveness of underwriting through the use of artificial intelligence or alternative data.

168


• Regulatory changes may necessitate modifications to existing operations, policies, procedures, and systems. These changes may result in significant compliance and reputational risk if not implemented correctly and with appropriate change management processes. The OCC has linked many risk assessment concerns to weaknesses in change management processes, such as bank processes that fail to include a compliance function when decisions are being made about changes in products or services.

169

CFPB will be the name

• Kathy Kraninger, new director, Memo

• As of December 17, 2018, I have officially halted all ongoing efforts to make changes to existing products and materials related to the name correction initiative. For statutorily required reports, legal filings, and other items specific to the Office of the Director, we will use the Bureau seal and the statutory name we were given in Dodd-Frank.

170

CFPB will be the name

• The name "Consumer Financial Protection Bureau" and the existing CFPB logo will continue to be used for all other materials.

• Many of us have legal names but use nicknames without much confusion. My birth certificate says Kathleen, but I also answer to Kathy. I think we can do the same here. I believe this decision is most efficient and effective for our continued work together.

171

CRA Asset Size Threshold Adjustment

• Agencies Release Annual CRA Asset-Size Threshold Adjustments

for Small and Intermediate Small Institutions

• "Small bank" or "small savings association" means an institution

that, as of December 31 of either of the prior two calendar

years, had assets of less than $1.284 billion.

• "Intermediate small bank" or "intermediate small savings

association" means a small institution with assets of at least

$321 million as of December 31 of both of the prior two

calendar years and less than $1.284 billion as of December 31

of either of the prior two calendar years.

172

Misc to do list

• As you plan for the next three years of compliance monitoring and auditing, consider the impact of the CFPB agenda items. Share the agenda with your Board

• Look at your states’ complaint snapshop and consider which of the higher volume complaints should be considered as applicable to you and perform monitoring or auditing to mitigate the risk

173

Misc to do list

• As you plan for the next three years of compliance monitoring and auditing, consider the impact of the OCC risk perspective. Share the risk perspective with your Board

• Discuss the necessity of a strong change management process with management and the Board

• Determine whether your CRA asset size category has changed and if so, adjust your related policies and procedures

174

Questions?

quarterly regulatory update - bai · 2020. 6. 5. · wipfli llp tim is a partner ... accounting,...

Documents