Skip to main content
Menu Icon Menu Icon

InfoBytes Blog

Financial Services Law Insights and Observations


Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.

  • SEC Adopts New Rules, Regulatory Framework for Swap Data Repositories


    On January 14, the SEC adopted new rules for security-based swap data repositories (SDRs), which store swap trading data. The rules require SDRs to register with the SEC and set reporting and public dissemination requirements for security-based swap transaction data. That reporting requirement, known as Regulation SBSR, outlines information that must be reported and publicly shared for each security-based swap transaction. The new rules are designed to increase transparency in the security-based swap market and are anticipated to reduce risks of default, improve price transparency, and hold financial institutions accountable for misconduct. The rules implement mandates under Title VII of the Dodd-Frank Act and will become effective 60 days after publication in the Federal Register. Persons subject to the new rules governing the registration of SDRs must comply with them by 365 days after they are published in the Federal Register.

    Dodd-Frank SEC Agency Rule-Making & Guidance

  • SEC Publishes List of Rules Scheduled For Review


    On December 29, pursuant to section 610 of the Regulatory Flexibility Act, the SEC published a list of rules scheduled for review by the agency. The list is intended to invite public comment on whether the rules should be continued, amended, or rescinded to minimize economic impact on small entities. Comments are due by January 28, 2015.

    SEC Agency Rule-Making & Guidance

  • Special Alert: Proposed Amendments to the TILA-RESPA Integrated Disclosure ("TRID") Rule, Transcript of CFPB Webinar on the Loan Estimate Form, and Introducing Buckley's TRID Resource Center


    Buckley is pleased to announce our new TILA-RESPA Integrated Disclosure (“TRID”) Resource Center.  The TRID Resource Center is a one-stop shop for TRID issues, providing access to Buckley’s analysis of the TRID rule and the CFPB’s amendments, transcripts of CFPB webinars providing guidance on the rule, and other CFPB publications that will facilitate implementation of the rule.  In particular, the TRID Resource Center will address the following recent developments:

    • Proposed amendments. On October 10, 2014, the CFPB proposed amendments to the TRID rule that, if adopted, would: (1) allow creditors to provide a revised Loan Estimate on the business day after the date the interest rate is locked, instead of the current requirement to provide the revised Loan Estimate on the date the rate is locked; and (2) correct an oversight by creating room on the Loan Estimate form for the disclosure that must be provided on the initial Loan Estimate as a condition of issuing a revised estimate for construction loans where the creditor reasonably expects settlement to occur more than 60 days after the initial estimate is provided.  The proposal would also make a number of additional amendments, clarifications, and corrections, including:
      • Add the Loan Estimate and Closing Disclosure to the list of loan documents that must disclose the name and NMLSR ID number of the loan originator organization and individual loan originator under 12 C.F.R. § 1026.36(g);
      • Provide additional guidance related to the disclosure of escrow accounts, such as when an escrow account is established but escrow payments are not required with a particular periodic payment or range of payments; and
      • Clarify that, consistent with the requirement for the Loan Estimate, the addresses for all properties securing the loan must be provided on the Closing Disclosure, although an addendum may be used for this purpose.

      Comments on the proposal are due by November 10, 2014. For your convenience, we have updated our summary of the TRID rule to identify the most significant proposed changes.

    • Unofficial Transcript of the CFPB’s October 1 Webinar on the Loan Estimate Form.  As it has with past webinars where CFPB staff provide informal guidance, Buckley has prepared a transcript of the CFPB’s October 1, 2014 webinar (hosted by the Federal Reserve) addressing frequently asked questions regarding the Loan Estimate form.  The transcript is provided for informational purposes only and does not constitute legal opinions, interpretations, or advice by Buckley. The transcript was prepared from the audio recording arranged by the Federal Reserve and may have minor inaccuracies due to sound quality. In addition, the transcript has not been reviewed by the CFPB or the Federal Reserve for accuracy or completeness.

    Other items in the TRID Resource Center include:


    Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other Buckley attorney with whom you have consulted in the past.


    CFPB TILA RESPA Agency Rule-Making & Guidance

  • Buckley Sandler Webcast Recap: FinCEN's Proposed Rule Amending Customer Due Diligence Obligations

    Consumer Finance

    BuckleySandler hosted a webcast entitled “FinCEN’s Proposed Rule Amending Customer Due Diligence Obligations,” on September 18, 2014, as part of the ongoing FinCrimes Webcast Series. Panelists included James Cummans, Vice President of BSA/AML Operations at TCF Bank; Jacqueline Seeman, Managing Director and Global Head of KYC at Citigroup, Inc.; and Sarah K. Runge, Director, Office of Strategic Policy at the U.S. Department of Treasury. The following is a summary of the guided conversation moderated by Jamie Parkinson, partner at BuckleySandler, and key take-aways to prepare for comments to the proposed rule and implementation of the new rule, once final, at your financial institution.

    Key Tips and Take-Aways:

    1. Assess and prepare your organization’s financial and personnel resources to make sure that the appropriate resources are in place to comply with the proposed rule once it is finalized. Certain technical aspects of implementation may be complicated depending on the financial institutions’ existing processes.
    2. Boards of Directors should participate in and be informed of the process.
    3. Institutions that are exempt from the rule, including money services businesses (“MSBs”), should also consider how this rule would affect their operations. FinCEN has announced that this is an incremental rule making, meaning the rule could extend to additional entities in the future.
    4. Covered financial institutions should consider the implications and compliance issues associated with the proposed rule and actively engage in the comment period. It is clear that FinCEN took certain industry concerns into account from the earlier Advance Notice of Proposed Rulemaking (“ANPRM”), so any potential issues should again be raised.

    Customer Due Diligence Rule Requirements

    The session began with a brief background on the rulemaking process and the overarching goals of the proposed CDD obligations. The panel then addressed the rule’s codification of existing practices and procedures relating to client onboarding procedures and transaction monitoring. Significantly, the panelists outlined the new requirement to identify “beneficial owners” and the two independent prongs—ownership and control—used to determine who would be considered a “beneficial owner” of a legal entity customer. Finally, the panelists noted that the current proposed rule requires financial institutions to use a standard certification form to document the beneficial ownership of legal entity customers.

    Potential Compliance Difficulties

    The panelists noted that while the proposed rule outlines what would be required of an institution, there are a number of potential compliance challenges. First, the panelists discussed the definition of a “beneficial owner.” Some financial institutions have implemented lower ownership thresholds or additional persons in “control” for CDD purposes based on their assessment of risk. This presents potential compliance and logistical considerations for institutions that determined for compliance risk reasons to identify additional “beneficial owners” under both prongs when considered under their current policies and procedures.

    Next, the panelists discussed the certification form that may be required by the rule. Panelists noted that the use of a paper based form could cause logistical challenges and compliance issues for institutions that are moving to digital documentation and banking. Specifically, the panelists expressed concern that the form might present difficulties associated with compiling data and performing additional risk analysis, and may also constrain the flexibility sought by different institutions in the manner of implementation of the new CDD information. The panelists also pointed out that a standard form (and the rule in general) impacts other compliance considerations, for example, those associated with e-signatures and data security. This looks likely to be an area of constructive commentary.

    Identity Verification for Beneficial Owners

    Panelists next discussed the rule’s requirement that financial institutions verify the identity of a “beneficial owner.” The original ANPRM had required financial institutions to verify not only the identity but also the status of the “beneficial owner.” Panelists noted that verification of an individual’s status would have presented significant compliance issues due to limited reliable resources to confirm such information, and that the required identity verification was a much better standard. The panelists also pointed out that this significant change demonstrates that FinCEN was taking industry opinion and comments to heart, and that this should encourage institutions to actively engage in the ongoing comment period.

    Non-Covered Entities

    Panelists then shifted to discussing the issue of entities who are not covered by the proposed rule. Panelists noted that there is likely to be commentary over some concern that the rule may create an uneven playing field between those companies that are required to gather this data and those companies that are not affected. Additionally, the panelists highlighted the fact that the current rule-making process has been presented as an incremental rule making, meaning that while certain entities may not currently be covered by the rule, FinCEN may expand the scope of entities covered by the rule in the future. As such, panelists suggested that entities not currently covered—such as MSBs and casinos—should not only pay attention to the proposed rule but perhaps evaluate their own compliance programs in anticipation of potential application later, but also actively engage in the comment portion of the rule making. The panel then warned that if these entities do not participate now, it may be difficult to make significant changes to the rule after it takes effect. Finally, regarding non-covered entities such as MSBs, panelists noted that the CDD requirements may have a practical impact despite the lack of formal mandate, as those covered institutions that bank non-covered entities may inquire about CDD practices and may expect non-covered entities to implement some type of risk-based CDD.

    Board Level Responsibilities and Requirements

    The panel also discussed the implications the proposed rule has on governance and the responsibilities of boards of directors. Panelists noted that boards have been encouraged to focus on enhanced training and resources regarding AML and BSA matters and that boards of directors need to understand the associated risks and legal requirements. Additionally, the panel pointed out that boards of directors need to monitor the implementation of any procedures dealing with the proposed requirements and that failure to properly implement the procedures or requirements could lead to disciplinary action. Finally, the board needs to ensure the organization’s financial and personnel resources are sufficient to address and implement the requirements of the proposed rule once it is finalized.

    Requirements for Existing Accounts

    The panel addressed the fact that while the proposed rule is not retroactive, the commentary states that financial institutions should be keeping the required information current and updated. Panelists expressed concern over what would be required with regard to keeping this information current, specifically highlighting concerns with when the financial institution would be required to update pre-existing low and medium risk customer profiles. The panel noted that while there are currently refresh cycles involved with their customers, there is no guidance as to how far back an institution would have to go and whether they would have to update the entire customer profile associated with an account.

    Implementation Timeline

    The panel concluded by discussing the proposed rule’s implementation timeline of one year. Panelists expressed concern that the one year period would cause certain technology related challenges and would be more burdensome for large institutions. The panelists noted that this is an issue that will likely be addressed in the comment period, with suggestions of between 18 and 24 months to prepare for and implement policies and procedures associated with the new rule.

    Anti-Money Laundering FinCEN Bank Secrecy Act Customer Due Diligence KYC Agency Rule-Making & Guidance

  • CFPB Finalizes Rule To Oversee Larger Nonbank International Money Transfer Providers

    Consumer Finance

    On September 12, the CFPB finalized a rule that allows it to supervise larger participants in the international money transfer market. In particular, this rule, which finalizes the proposed rule the CFPB issued in January 2014, allows the CFPB to supervise nonbank international money transfer providers that provide more than $1 million in international transfers annually, for compliance with the Remittance Rule under the Electronic Fund Transfer Act. The final rule will be effective December 1, 2014.

    The CFPB will seek to ensure that these providers comply with a number of specific consumer-protection provisions, including the following:

    • Disclosures: The CFPB will examine providers to determine that consumers receive the Remittance Rule-required disclosures in English as well as in any other language the provider uses to advertise, solicit, or market its services, or in any language in which the transaction was conducted. These disclosures inform consumers of the exchange rate, fees, the amount of money that will be delivered abroad, and the date the funds will be available.
    • Option to Cancel: The CFPB will examine transfer providers to ensure that consumers receive at least thirty minutes to cancel the transfer if it has not yet been received, and that consumers receive a refund regardless of the reason for the cancellation.
    • Correction of Errors: The CFPB will insist that remittance transfer providers properly investigate certain errors, and, if a consumer reports an error within 180 days, the CFPB will examine providers to determine that they have investigated and corrected certain types of errors. The CFPB will also examine providers to ensure that they are held accountable for the actions of any agents they use.

    The CFPB used the authority granted to it in the Dodd-Frank Act to supervise “larger participants” in consumer financial markets, and this is the Bureau’s fourth larger participant rule. The CFPB indicates that it will use the same examination procedures for nonbank providers as it does for bank remittance providers, and the CFPB intends to coordinate with state examiners in its supervision.

    The CFPB estimates that nonbank international money transfer providers transfer $50 billion each year, and 150 million individual international money transactions occur each year through these institutions, with seven million U.S. households transferring funds abroad each year through a nonbank.


    CFPB Nonbank Supervision Remittance Agency Rule-Making & Guidance

  • CFPB Offers More Details On Plans To Supervise Auto Finance Market

    Consumer Finance

    On September 17, the CFPB released new information about its plans to supervise and enforce auto finance companies’ compliance with consumer financial laws, including fair lending laws. As it indicated it would earlier this year, the CFPB released a proposed rule that would allow it to supervise certain nonbank auto finance companies. Also as previously promised, the CFPB published a white paper on its method to proxy for race and national origin in auto finance transactions. Finally, the CFPB published its most recent Supervisory Highlights report, which is dedicated to its supervisory findings at depository institutions with auto finance operations.

    The CFPB released the materials in connection with its September 18th field hearing on auto finance issues. These actions come roughly 18 months after the CFPB first provided guidance to auto finance companies regarding its expectations related to dealer “reserve” (or “participation”) and fair lending.

    Larger Participant Rule

    The Dodd-Frank Act grants the CFPB authority to supervise, regardless of size, nonbanks offering (i) certain mortgage-related products and services; (ii) private education loans; and (iii) payday loans. The CFPB also has the power to supervise “larger participants” in any other market for consumer financial products or services, provided that it first conducts a rulemaking to define “larger participants” within a particular market.

    As proposed, the CFPB’s auto finance larger participant rule would allow the agency to supervise any nonbank finance company that has at least 10,000 aggregate annual originations. The rule would define “annual originations” as grants of credit for the purchase of an automobile, refinancings of such credit obligations and any subsequent refinancings thereof, and purchases or acquisitions of such credit obligations (including refinancings). It would also include “automobile leases” and purchases or acquisitions of automobile lease agreements. The rule would define “automobile” to include “any self-propelled vehicle primarily used for personal, family, or household purposes for on-road transportation” and to exclude “motor homes, recreational vehicles (RVs), golf carts, and motor scooters.”

    The CFPB estimates the rule as proposed will allow it to oversee roughly 38 auto finance companies that the CFPB believes “originate around 90% of nonbank auto loans and leases.” As proposed the rule would not apply to title lending or the securitization of automobile loans and leases, but the CFPB requests comment on an approach that would include such activities. The rule also would not apply to auto dealers or to depository institutions.

    Comments on the proposal are due 60 days after the proposed rule is published in the Federal Register.

    Proxy Methodology White Paper

    Since releasing its guidance on auto finance fair lending—which the CFPB has characterized as a restatement of existing law and which sought to establish publicly the CFPB’s grounds for asserting violations of ECOA against bank and nonbank auto finance companies for alleged “discretionary pricing policies”—the CFPB has faced pressure from industry stakeholders and lawmakers who have challenged the Bureau to provide additional information to support its approach to determining disparate impact.

    The CFPB now provides additional information regarding one aspect of that approach—its method to proxy for race and national origin in the auto finance market, where such data is not collected as part of the financing process. The white paper reiterates that in conducting fair lending analysis of non-mortgage credit products in both supervisory and enforcement contexts, the CFPB’s Office of Research (OR) and Division of Supervision, Enforcement, and Fair Lending (SEFL) rely on a “Bayesian Improved Surname Geocoding (BISG)” proxy method. That method combines geography- and surname-based information into a single probability for race and ethnicity. The paper is intended to explain the construction of the BISG proxy currently employed by OR and SEFL and purports to assess the performance of the BISG method using a sample of mortgage applicants for whom race and ethnicity are reported. The CFPB asserts that “research has found that this approach produces proxies that correlate highly with self-reported race and national origin and is more accurate than relying only on demographic information associated with a borrower’s last name or place of residence alone.”

    In its paper, the CFPB states that “it does not set forth a requirement for the way proxies should be constructed or used by institutions supervised and regulated by the CFPB” and that the BISG proxy methodology “is not static; it will evolve over time as enhancements are identified that improve accuracy and performance.”

    The paper does not address other aspects of the CFPB’s processes or methods used to determine disparate impact, such as (i) the controls applied to ensure sure that the consumers who are being compared are “similarly situated”; or (ii) the basis point thresholds at which the Bureau determines a prohibited pricing disparity exists.

    Concurrent with the release of the white paper, the CFPB provided its statistical software code and an example of publicly available census data used to build the race and ethnicity proxy.  Of note in its introduction, the CFPB states that it “may alter this methodology in particular analyses, depending on the circumstances involved.”

    Supervisory Highlights and CFPB Expectations

    Finally, the CFPB released its latest Supervisory Highlights report, which details alleged discrimination in the auto finance market the CFPB has uncovered at banks over the past two years.

    The CFPB states that, generally, its examiners found that bank indirect auto creditors “had discretionary pricing policies that resulted in discrimination against African-American, Hispanic, and Asian and Pacific Islander borrowers. As a result, these borrowers paid more for their auto loans than similarly situated non-Hispanic white borrowers.”

    Although it has only publicly announced one enforcement action to resolve such allegations, the CFPB’s report states that non-public CFPB supervisory actions at indirect auto financing institutions resulted in approximately $56 million in remediation for up to 190,000 consumers.

    The report again urges auto finance companies to consider three possible ways the CFPB believes institutions can mitigate their fair lending risk by: (i) “monitor[ing] and, if necessary, correct[ing] disparities through a strong compliance management system”; (ii) limiting “the maximum discretionary pricing adjustment to an amount that significantly reduces or eliminates disparities”; or (iii) “compensat[ing] dealers using a non-discretionary mechanism.”

    In its press release accompanying the above materials, the CFPB further outlined its expectations for auto finance companies, stating that “given the significance of car ownership in the lives of consumers,” the CFPB expects auto finance companies to:

    • Fairly market and disclose auto financing. Specifically the CFPB “would be concerned if consumers are being misled about the benefits or terms of financial products,” and the Bureau is “also looking to ensure that consumers are getting terms they understand and accept.”
    • Provide accurate information to credit bureaus.  Citing its recent enforcement action against an auto finance company alleged to have inaccurately reported information like the consumer’s payment history and delinquency status to credit bureaus, the CFPB states that it is “looking to prevent inaccurate information from being reported in the future.”
    • Treat consumers fairly when collecting debts. The CFPB states that it has received complaints from consumers who claim their vehicles have been repossessed while they are current on the loan or have a payment arrangement in place, and that the CFPB will ensure that collectors are relying on accurate information and using legal processes when they collect on debts or repossess vehicles.

    CFPB Auto Finance Fair Lending Enforcement Disparate Impact Agency Rule-Making & Guidance

  • Special Alert: FinCEN Publishes Long-Awaited Proposed Customer Due Diligence Requirements

    Consumer Finance

    On August 4, 2014, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) published a Notice of Proposed Rulemaking ("NPRM") that would amend existing Bank Secrecy Act (“BSA”) regulations intended to clarify and strengthen customer due diligence (“CDD”) obligations for banks, securities broker-dealers, mutual funds, and futures commission merchants and introducing brokers in commodities (collectively, “covered financial institutions”).

    In drafting the modifications, FinCEN clearly took into consideration comments responding to its February 2012 Advance Notice of Proposed Rulemaking (“ANPRM”), as the current proposal appears narrower and somewhat less burdensome on financial institutions. Comments on the proposed rulemaking are due October 3, 2014.

    Overview: Under the NPRM, covered financial institutions would be obligated to collect information on the natural persons behind legal entity customers (beneficial owners) and the proposed rule would make CDD an explicit requirement. If adopted the NPRM would amend FinCEN’s AML program rule (the four pillars) by making CDD a fifth pillar.

    Click here to view the special alert.


    Anti-Money Laundering FinCEN Bank Secrecy Act Customer Due Diligence KYC Agency Rule-Making & Guidance

  • FinCEN Proposes Customer Due Diligence Rule

    Consumer Finance

    On July 30, FinCEN released a proposed rule that would amend BSA regulations to clarify and add customer due diligence (CDD) obligations for banks and other financial institutions, including brokers or dealers in securities, mutual funds, futures commission merchants, and introducing brokers in commodities. The rule would not cover other entities subject to FinCEN regulations that are not already required to have a customer identification program (CIP)—e.g money services businesses—but FinCEN may extend CDD requirements in the future to these, and potentially other types of financial institutions. The proposed rule states that as part of the existing regulatory requirement to have a CIP, covered institutions are already obligated to identify and verify the identity of their customers. The proposed rule would add to that base CDD requirement, new requirements to: (i) understand the nature and purpose of customer relationships; and (ii) conduct ongoing monitoring to maintain and update customer information and to identify and report suspicious transactions. The proposed rule also would add a so-called beneficial ownership requirement, which would require institutions to know and verify the identities of any individual who owns at least 25% of a legal entity, or who controls the legal entity.

    FinCEN emphasizes that nothing in the proposal is intended to limit the due diligence expectations of the federal functional regulators or in any way limit their existing regulatory discretion. To that end, the rule would incorporate the CDD elements on nature and purpose and ongoing monitoring into FinCEN’s existing AML program requirements, which generally provide that an AML program is adequate if, among other things, the program complies with the regulation of its federal functional regulator governing such programs. FinCEN does not believe that the new CDD requirements will require covered institutions to perform any additional activities or operations, but acknowledges the rule may necessitate revisions to written policies and procedures. FinCEN also recognizes that financial institutions will be required to modify existing customer onboarding processes to incorporate the beneficial ownership requirement. As such, FinCEN proposes an effective date of one year from the date the final rule is issued. Comments on the proposal are due 60 days from publication of the proposal in the Federal Register.

    Anti-Money Laundering FinCEN Bank Secrecy Act Customer Due Diligence KYC Agency Rule-Making & Guidance

  • FDIC Responds To Choke Point Scrutiny With Clarified TPPP Guidance

    Consumer Finance

    On July 28, the FDIC issued FIL-41-2014 to clarify its supervisory approach to bank relationships with third-party payment processors (TPPPs). In short, the letter removes the FDIC’s list of examples of merchant categories from its existing guidance and informational article. That list, which identified potential “high-risk” businesses, including firearms and ammunition merchants, coin dealers, and payday lenders, among numerous others, has been scrutinized and challenged by members of Congress in recent months. The new guidance explains the “lists of examples of merchant categories have led to misunderstandings regarding the FDIC’s supervisory approach to TPPPs, creating the misperception that the listed examples of merchant categories were prohibited or discouraged.” The FDIC’s letter continues to defend the list as “illustrative of trends identified by the payments industry at the time the guidance and article were released” and reasserts that it is the FDIC’s policy that insured institutions that properly manage customer relationships are neither prohibited nor discouraged from providing services to any customer operating in compliance with applicable law.

    FDIC Payment Processors Operation Choke Point Agency Rule-Making & Guidance

  • CFPB Proposes Rule To Implement Dodd-Frank HMDA Changes


    On July 24, the CFPB issued a proposed rule to expand the scope of HMDA data reporting requirements. Section 1094 of the Dodd-Frank Act transferred responsibility for HMDA and Regulation C to the CFPB and directed the CFPB to conduct a rulemaking to expand the collection of mortgage origination data to include, among other things: (i) the length of the loan; (ii) total points and fees; (iii) the length of any teaser or introductory interest rates; (iv) the applicant or borrower’s age and credit score; and (v) the channel through which the application was made. The Dodd-Frank Act also granted the CFPB discretion to collect additional information as it sees fit. The proposed rule would implement all of the new data points required by the Dodd-Frank Act, and also would utilize the CFPB’s discretionary authority to substantially expand the number of new data points required to be reported. In addition, the CFPB’s proposal would require reporting for all dwelling-secured loans, which would include some loans not currently covered by Regulation C, including reverse mortgages, and all home equity lines of credit irrespective of their purpose. The proposal follows a review initiated by the CFPB earlier this year to assess of the potential impacts of a HMDA rulemaking on small businesses. The CFPB released a summary of that review with the proposed rule. Comments on the proposal are due by October 22, 2014. We are reviewing the proposed rule and plan to provide a more detailed summary in the coming days.

    CFPB Mortgage Origination HMDA Agency Rule-Making & Guidance


Upcoming Events