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FFIEC Releases Guidelines on HMDA Data Testing and Resubmission Standards
Earlier this week the Federal Financial Institutions Examination Council (FFIEC) issued new FFIEC Home Mortgage Disclosure Act Examiner Transaction Testing Guidelines (guidelines). Examiners will use the new guidelines to assess the accuracy of the HMDA data recorded and reported by financial institutions and determine when an institution must correct and resubmit its HMDA Loan Application Register. The guidelines will apply to data collected beginning January 1, 2018. As further explained in a CFPB blog post issued the same day, this will be the first time all federal HMDA supervisory agencies—including the CFPB, FDIC, Federal Reserve, NCUA, and the OCC—will adopt uniform guidelines, which are designed to ensure HMDA data integrity (HMDA data includes certain information financial institutions are required to collect, record, and report about their home mortgage lending activity). The purpose for collecting the HMDA data is to evaluate housing trends and issues to monitor lending patterns, assist agencies with fair lending and Community Reinvestment Act examinations, and help identify discriminatory lending practices. According to a FDIC financial institution letter (FIL-36-2017) released on August 23, the highlights of the guidelines include, among other things, a data sampling process, error threshold levels, tolerance levels for minor errors, and the ability of examiners to direct a financial institution to make appropriate change to its compliance management system to prevent recurring HMDA data errors.
As previously discussed in InfoBytes, in 2016 the CFPB issued a request for public feedback on the resubmission of mortgage lending data reported under HMDA.
CFPB Issues Final Rule Amending 2015 HMDA Rule
On August 24, the CFPB issued a final rule amending Regulation C, which implements the Home Mortgage Disclosure Act (HMDA). The changes are primarily for the purpose of clarifying the new data collection and reporting requirements published in October 2015, with most of the clarifications and revisions taking effect January 1, 2018. The CFPB released a proposed version of the clarifications on April 13 (April Proposed Rule)—on which it solicited public comments—to address technical errors, ease the burden of certain reporting requirements, and clarify certain key terms. A detailed look at the April Proposed Rule was provided in an InfoBytes Special Alert earlier this year. An additional request for comments was issued July 14 on proposed amendments to ease the burden on community banks and credit unions by temporary raising the HMDA reporting threshold for open-end lines of credit. (See previous InfoBytes coverage here.) The CFPB adopted the April Proposed Rule and July amendments largely as written, however, a limited number of substantive changes were made. In order to assist filers, the CFPB released a comprehensive summary of the changes and reference charts to help institutions determine whether they are covered by Regulation C for 2017 or 2018 and beyond. The CFPB also released updated filing instruction guidelines for data collected in 2017 and 2018. The guidelines list changes to the reported data fields and valid values, and covers guidance for HMDA data collected in 2017 and thereafter that must be submitted to the CFPB on March 1 of each calendar year following the year of data collection.
Highlights of changes made to the rule include:
- Amendments to Regulation C that temporarily increase the threshold for the collection and reporting of data about open-end lines of credit, for a period of two years. Financial institutions originating fewer than 500 open-end lines of credit in either 2018 or 2019 will not be obligated to begin collecting such data until January 1, 2020. During this time, the Bureau will consider whether to make the increase permanent;
- Clarification to several aspects concerning the collecting and reporting of race and ethnicity information, including (i) that applicants are not required to select an aggregate race or ethnicity category as a precondition to selecting a race or ethnicity subcategories; (ii) that applicants may provide a particular “other” ethnicity or race in the free-form field, whether or not the applicant selects the “Other Hispanic or Latino,” “Other Asian,” or “Other Pacific Island” subcategory; and (iii) how financial institutions should report ethnicity—following the outlined methods—if an applicant selects more than five ethnicity categories and subcategories combined; and
- Clarification to certain key terms defined in the 2015 HMDA Rule, including “temporary financing, automated underwriting system, multifamily dwelling, extension of credit, income, and mixed-use property.”
Buckley Sandler will release a more comprehensive analysis of the rule and its impact on financial institutions next week.
Buckley Sandler Insights: CFPB Updates Rulemaking Agenda
On July 20, the CFPB released its Spring 2017 rulemaking agenda. The agenda was last updated in Fall 2016. The summer release date, and the fact that certain deadlines listed in the updated agenda have already passed, indicates that the agenda’s release may have been delayed after the CFPB drafted it. The following aspects of the updated agenda are particularly noteworthy:
- Regulation Reviews: The Bureau plans to begin “the first in a series of reviews of existing regulations that we inherited from other agencies through the transfer of authorities under the Dodd-Frank Act,” noting that “other federal financial services regulators have engaged in these types of reviews over time, and believe that such an initiative would be a natural complement to our work to facilitate implementation of new regulations.” The Bureau has formed “an internal task force to coordinate and deepen the agency’s focus on concerns about regulatory burdens and projects to identify and reduce unwarranted regulatory burdens….” The agenda lists “pre-rule activities” as continuing through September 2017. Separately, the Bureau notes its ongoing assessments of the effectiveness of the Mortgage Servicing Rules, the Ability-to-Repay/Qualified Mortgage Rule, and the Remittance Transfer Rule pursuant to the Dodd-Frank Act’s five-year lookback provision.
- Small Dollar Lending: The Bureau reports that it received more than one million comments on its June 2016 proposed rule to impose ability-to-repay requirements for payday, vehicle title, and similar installment loans. The Bureau states that it “continue[s] to believe that the concerns articulated in the [proposed rule] are substantial” but does not provide an expected release date for a final rule.
- “Larger Participants” in Installment Lending: The agenda lists September 2017 as the expected release date for “a proposed rule that would define non-bank ‘larger participants’ in the market for personal loans, including consumer installment loans and vehicle title loans.” Designation as a larger participant brings a non-bank entity within the CFPB’s supervisory jurisdiction. The agenda indicates that a companion rule requiring payday, vehicle title lenders, and other non-bank entities to register with the Bureau is also underway, as noted below.
- Debt Collection: In July 2016, the Bureau released an outline of proposals under consideration for debt collection and convened a panel under the Small Business Regulatory Enforcement Fairness Act in conjunction with the Office of Management and Budget and the Small Business Administration’s Chief Counsel for Advocacy to consult with representatives of small businesses that might be affected by the rulemaking. The Bureau notes that, “[b]uilding on feedback received through [that] panel, we have decided to issue a proposed rule later in 2017 concerning debt collectors’ communications practices and consumer disclosures.” The agenda states that a proposed rule is expected in September 2017. The Bureau also states that, in a departure from the July 2016 outline of proposals, the Bureau “intend[s] to follow up separately at a later time about concerns regarding information flows between creditors and FDCPA collectors and about potential rules to govern creditors that collect their own debts.”
- Overdrafts: The Bureau states that the current opt-in regime “produces substantially different opt-in rates across different depository institutions” and that its “supervisory and enforcement work indicates that some institutions are aggressively steering consumers to opt in.” The Bureau reports that it is “engaged in consumer testing of revised opt-in forms and considering whether other regulatory changes may be warranted to enhance consumer decision making.” The agenda lists “pre-rule activities” as continuing through June 2017.
- Small Business Lending: The agenda lists “pre-rule activities” on the implementation of the small business data reporting provisions of the Dodd-Frank Act as continuing through June 2017. Specifically, the agenda states that, at this juncture, the CFPB “is focusing on outreach and research to develop its understanding of the players, products, and practices in the small business lending market and of the potential ways to implement section 1071.”
- HMDA & ECOA Amendments: The agenda lists October 2017 as the expected release date for the April 2017 proposed ECOA amendments to clarify requirements for collecting information on ethnicity, race, and sex, but does not list an expected release date for finalization of the April 2017 proposed technical corrections to the 2015 HMDA rule, or the July 2017 proposed amendments to the 2015 HMDA rule’s requirements for reporting home equity lines of credit.
- TRID/Know Before You Owe Amendments: The agenda lists March 2018 as the expected release date for finalization of the July 2017 proposed rule addressing the “black hole” issue, which is discussed in our special alert.
- Mortgage Servicing Amendments: The Bureau states that it expects to issue a proposal in September 2017 “to make one or more substantive changes to the rule in response to . . . concerns” raised by the industry.
- Arbitration: Interestingly, the agenda states that the Bureau’s final rule on mandatory arbitration clauses, which was released this month to significant controversy, was not expected until August.
- Non-Bank Registration: The Bureau states that it is “considering whether rules to require registration of [installment lenders] or other non-depository lenders would facilitate supervision, as has been suggested to us by both consumer advocates and industry groups.”
- Prepaid Cards: The agenda does not provide an expected release date for finalization of the June 2017 proposed amendments addressing error resolution and limitations on liability, application of the rule’s credit-related provisions to digital wallets, and other issues.
- Credit Card Agreement Submission: The Bureau is “considering rules to modernize our database of credit card agreements to reduce burden on issuers that submit credit card agreements to us and make the database more useful for consumers and the general public.” The agenda lists “pre-rule activities” as continuing through October 2017.
ABA, CFPB to Host Webinar for Financial Institutions on New HMDA Submission Platform
On July 17, the ABA and CFPB announced a joint webinar on August 8 at 2:00 pm EDT, which will instruct compliance, operations, and loan processing professionals on how to use the new platform for submitting HMDA data. The webinar will provide an overview of the new tool and data collection process that all financial institutions must use to submit HMDA data beginning January 1, 2018 for data collected during 2017 and going forward.
Notably, however, on July 14, the CFPB issued a request for comments on proposed amendments to its HMDA reporting threshold for calendar years 2018 and 2019 to ease the burden on small-volume lenders. The comment period ends July 31, 2017. (See previous InfoBytes summary here.)
ABA, State Banking Associations Request HMDA Implementation Delay
Following up on comments submitted to the CFPB on its proposal to amend the 2015 HMDA rule (see previous InfoBytes coverage here), the American Bankers Association (ABA)—along with state banking associations representing all 50 states and Puerto Rico—sent a letter on July 12 to the Bureau requesting that the new “complex” and “substantive” requirements scheduled to take effect January 1, 2018 be delayed to allow banks time to comply. The associations claim the Bureau (i) failed to sufficiently conduct industry research to identify and address questions and proposed solutions concerning the proposed changes, and (ii) inadequately addressed issues related to the protection of borrower data. The ABA also stresses that the software systems banks need to incorporate into their platforms to ensure compliant data collection will not be available in time “because the industry and systems vendors are still awaiting rule changes that will necessitate system adaptations.” The Bureau has been asked to announce its intention for a delay within the next month.
CFPB Seeks Comments on Proposed Amendments to HMDA Reporting Threshold
On July 14, the CFPB announced and requested comments on proposed amendments to Regulation C, which concerns reporting requirements for banks and credit unions issuing home-equity lines of credit under HMDA. The amendments would raise the threshold from 100 loans to 500 for calendar years 2018 and 2019 to ease the burden on small-volume lenders. During this time, the Bureau will determine based on feedback whether the threshold should be permanently changed. The comment period ends July 31, 2017.
As previously reported in InfoBytes, earlier this year the Bureau solicited and received comments on its proposal to clarify data collection and reporting requirements under the 2015 HMDA rule. The amendments are scheduled to take effect January 1, 2018.
FDIC Releases List of Enforcement Actions Taken Against Banks and Individuals in April 2017
On May 26, the FDIC released its list of 18 administrative enforcement actions taken against banks and individuals in April. Among the consent orders on the list are civil money penalties for violations of the Flood Disaster Protection Act of 1973 and its flood insurance requirements. Also on the list are a cease and desist order and a civil money penalty assessment issued to a Louisiana-based bank (Bank) for violations of the Bank Secrecy Act (BSA), EFTA, RESPA, TILA, HMDA, and the National Flood Insurance Program. According to the cease and desist order, the FDIC Board of Directors agreed with the Administrative Law Judge’s recommended decision that the Bank engaged in unsafe or unsound practices, which warranted a cease and desist order and civil money penalty. The order also addressed a number of shortcomings identified by the Bank’s examiners, including the following: (i) the Bank’s BSA program lacked adequate internal controls to ensure compliance; (ii) it failed to provide correct and compete electronic funds transfer disclosures to consumers; (iii) borrowers were provided “untimely and improperly completed” good faith estimates; and (iv) the Bank repeatedly failed to accurately report required HMDA information to federal agencies.
An additional eight actions listed by the FDIC related to unsafe or unsound banking practices and breaches of fiduciary duty, including five removal and prohibition orders. There are no administrative hearings scheduled for June 2017. The FDIC database containing all of its enforcement decisions and orders may be accessed here.
Financial Services Associations Comment on CFPB’s HMDA Proposal
As previously covered in an InfoBytes Special Alert, the CFPB issued a request for comment on its proposal to amend the 2015 HMDA rule, which would incorporate changes primarily for the purpose of clarifying data collection and reporting requirements. The request, which closed for public comment on May 25, received 46 public comments from several banking and credit union industry associations.
Mortgage Bankers Association (MBA). On May 25, the MBA—a national association representing the real estate financial industry—submitted a comment letter outlining outstanding issues and calling upon the Bureau to provide clarifying and technical corrections to Regulation C, which implements HMDA. The MBA outlined the following points, among others, for consideration:
- delay the effective date of the Final Rule and amendments pending completion of key actions in the following areas: “HMDA data collection portals; publication and implementation of data quality edits; geocoder production release and integration specs; data privacy concerns; resubmission expectations; updated filing instructions guides; guidance on reporting and collection issues; impacts of the proposed amendments; uniform residential loan application; government monitoring information”;
- address recommendations pertaining to multifamily lending: (i) “multifamily loans should not be subject to HMDA reporting”; (ii) “purchases and assumptions of multifamily loans should be exempt from introductory rate period reporting”; (iii) “the CFPB should accept simplified reporting from smaller-volume HMDA reporters, particularly smaller-volume multifamily reporters”; and (iv) “further consideration and clarification of the multifamily definition is needed”; and
- a one-year delay would allow the CFPB to address privacy concerns that “might dictate that certain data not be disclosed publicly,” thereby giving the Bureau time to “reconsider whether the many data points required under Dodd-Frank . . . should be required.”
According to the CFPB’s request for comment, most of the amendments in the Final Rule are to go into effect January 1, 2018; however, the MBA noted that data collection must commence in 2017 for loan applications that may become reportable in 2018. Therefore, the MBA urged the Bureau to delay implementation for at least one year to allow sufficient time for data collection and reporting which would give the CFPB “time to provide much-needed information and materials, and to allow HMDA reporters more time to finalize and implement the changes effectively.”
American Bankers Association (ABA). Separately, on May 25, the ABA submitted a comment letter opining that many of the Bureau’s “technical corrections, clarifying amendments or minor changes” are “substantive in nature” and require a more comprehensive and formal process to “identify industry questions and proposed solutions.” Specifically, among other things, the ABA emphasized the following recommendations:
- the January 1, 2018 effective date of the Final Rule should be “suspended immediately” in order to “promote the orderly, coordinated, and thorough consideration and resolution of all the interrelated issues presented and to make sure that all of the privacy and security issues are adequately addressed”;
- the CFPB should consider updating, rather than discontinuing, its reference tool for lenders entitled A Guide to HMDA: Getting it Right;
- several categories require further clarification: loans in process or loans originated before but purchased after the rule’s effective date; multifamily dwellings; home improvement loans; temporary financing; the threshold for reporting; counteroffers; applicant or borrower’s reported income; the annual percentage rate; rate spreads and rate set dates; reporting when there are no closing disclosures; corrected disclosures; the unique loan identifier; the geocoding tool’s use; and information pertaining to ethnicity and race; and
- pending guidance on error resolution and software required for reporters should be finalized “as soon as possible,” and regulations on privacy and data security should be proposed “with the utmost speed.”
“Piecemeal corrections based on informal and anecdotal evidence only adds to regulatory burden, which adds costs to borrowers and reduces access to mortgage credit,” the ABA noted.
Legislation Proposed to Require Study on Homeowners’ Privacy of Collected HMDA Information
On April 27, Reps. Randy Hultgren (R-Ill.) and Andy Barr (R-Ky.) reintroduced legislation to “protect against the misuse of consumers’ sensitive financial information” collected under the Home Mortgage Disclosure Act (HMDA). According to a May 5 press release issued by Rep. Hultgren’s office, the Homeowner Information Privacy Protection Act (H.R. 2204) would require the Comptroller General of the United States to conduct a study to determine whether the data required to be published, made available, or disclosed under HMDA could result in: (i) exposing the mortgagor’s or applicant’s identity; (ii) exposing the mortgagor or applicant to identity theft or loss of personal, sensitive information; (iii) marketing or selling unfair, deceptive, or abusive financial products based on such information; (iv) personal financial loss or emotional distress resulting from the exposure to identify theft or the loss of sensitive personal financial information; and (v) “the potential legal liability facing the Bureau and market participants in the event the data required to be published, made available, or disclosed under the final rule leads or contributes to identity theft or the capture of sensitive personal financial information.” The bill further provides that the Comptroller will submit reports detailing the findings and conclusions as well as any recommendations for legislative and regulatory actions to the Committee on Financial Services of the House of Representatives and the Committee on Banking, Housing, and Urban Affairs of the Senate. In addition, the bill proposes to delay the effective date of the new reporting requirements set forth in the 2015 HMDA rule to January 1, 2019.
As previously covered in InfoBytes Special Alerts (see here and here), the CFPB has proposed amendments to the 2015 HMDA rule, which clarifies the collection and reporting requirements for several data points, among other things.
American Bankers Association White Paper Addresses Concerns Over HMDA Expansion
On May 2, the American Bankers Association (ABA) issued a white paper to the Treasury Department on the implementation of the 2015 Home Mortgage Disclosure Act (HMDA) rule as part of its continuing response to President Trump’s executive order outlining “core principles” for financial regulation (see previously issued Special Alert here). The white paper, HMDA – More Really is Less: The Data Fog Frustrates HMDA, presents several views held by the ABA including that the CFPB should (i) rescind requirements to collect any data fields not expressly required by HMDA; (ii) suspend the effective date of the 2015 HMDA rule until privacy and security concerns are addressed (see previously issued Special Alert here); (iii) exclude commercial loans from HMDA coverage; and (iv) revoke the new HMDA data elements added by the Dodd-Frank Act. The ABA noted that the Dodd-Frank Act added more than 13 new categories to the statutory HMDA data fields lenders are required to collect, and in the implementing regulation, Regulation C, the CFPB added 25 new data fields to the existing 23 fields. The ABA noted that the CFPB estimates that, in addition to existing costs of HMDA compliance, the additional annual costs of operations will be approximately $120.6 million conservatively (more if reporting quarterly) and lenders will incur a one-time additional cost of between $177 million and $326.6 million. Furthermore, the ABA states there still remains a need to address the “significant” privacy issues presented by the “vast trove of data points added by Dodd-Frank,” and that “the collection and transfer and warehousing of greatly increased and more sensitive data will necessitate even more robust and costlier private sector and government systems.” However, the ABA noted the Bureau has not initiated rulemaking to address the privacy issues presented.
Notably, last month, the CFPB issued a proposal in the Federal Register to amend the 2015 HMDA rule (see previously issued Special Alert here). The changes are primarily for the purpose of clarifying data collection and reporting requirements, and most of the clarifications and revisions would take effect in January 2018. The deadline to submit comments on the CFPB’s proposal is May 25, 2017.