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FinCEN updates Bank Secrecy Act FAQs
Recently, the Financial Crimes Enforcement Network (FinCEN) updated its “Answers to Frequently Asked Bank Secrecy Act (BSA) Questions.” The December update provided the following, among other things: (i) “depository institutions are not required to file a Designation of Exempt Person form . . . with respect to the transfer of currency to or from any of the 12 Federal Reserve Banks” (in accordance with amended 31 CFR 1020.315); (ii) guidelines for filing the Designation of Exempt Person form; and (iii) guidance concerning the types of identifying information financial institutions should obtain when a federal, state or local government official engages in a transaction over a certain amount in an official capacity. FinCEN stated that “the answers are not meant to be comprehensive, apply to all factual situations, or to replace or supersede the BSA regulations.”
Pennsylvania Governor Signs Law Concerning Mortgage Servicing Activities
On December 22, Pennsylvania Governor Tom Wolf signed into law SB 751, an act amending Title 7 of the Pennsylvania Consolidated Statutes to regulate certain mortgage servicing activities. The amendments revise existing definitions, define new terms, establish mortgage servicing licensing requirements, create single point of contact requirements, and set forth specific steps that mortgage servicers must complete as soon as mortgage loans are paid in full. The law also requires, effective December 22, the promulgation of regulations to incorporate the CFPB’s mortgage servicing regulations. The remaining sections of SB 751 go into effect on the date that the new promulgated regulations are issued.
CFPB Releases Biennial Credit Card Report
On December 27, the CFPB released its biennial report on the state of the U.S. credit card market, finding that the total amount of credit lines, the total number of credit accounts, the total number of enrollments in online services, and the total amount of debt have increased since 2015. The report also found that the overall credit card cost to consumers has “proved largely stable” since 2015. Among other things, the report concludes:
- The total amount of credit lines has increased steadily since the recession but still remains below the mid-2008 high of $4.4 trillion.
- Over the last two years, credit card debt averages have increased by more than nine percent.
- Credit card originations have increased by roughly 50 percent since 2010 but still remain below pre-recession volumes.
- More than 60 percent of active credit card accounts enroll in online services.
Consumers average fewer credit cards than before the recession, and more consumers are signing up for secured credit cards.
Agencies Release CRA Asset-Size Threshold Adjustments
On December 21, the Federal Reserve, the OCC, and the FDIC (collectively, the “Agencies”) jointly announced the adjusted thresholds for asset-size used to define “small” and “intermediate small” banks and savings associations under the Community Reinvestment Act (CRA). Effective January 1, 2018, a small bank or savings association will be defined as an institution that, as of December 31 of either of the past two calendar years, had assets of less than $1.252 billion. Additionally, an “intermediate small” bank or “intermediate small” savings association will be defined as an institution with at least $313 million and less than $1.252 billion in assets as of December 31 of either of the past two calendar years. The agencies published the annual adjustments in the Federal Register on December 27.
Federal Reserve Issues Final Rules Reflecting Credit and Interest Rate Increases
On December 20, the Federal Reserve Board (Fed) issued a final rule amending Regulation A (Extensions of Credit by Federal Reserve Banks) to reflect its December 13 approval of a one-quarter percent increase in the primary credit rate at each Federal Reserve Bank. Additionally, because the formula for the secondary credit rate references the primary rate, the secondary credit rate also increased by one-quarter percentage point. The rate changes took effect on December 14, and the final rule became effective on December 20.
The same day, the Fed also issued a final rule amending Regulation D (Reserve Requirements of Depository Institutions) to reflect its December 13 approval of a one-quarter percent increase to the “rate of interest paid on balances maintained to satisfy reserve balance requirements (“IORR”) and the rate of interest paid on excess balances (“IOER”) maintained at Federal Reserve Banks by or on behalf of eligible institutions.” The rate changes took effect on December 14, and the final rule became effective on December 20.
CFPB Releases HMDA Tools; Updates HMDA Asset Threshold
On December 27, the CFPB announced the launch of a HMDA Check Digit Tool and a Rate Spread Calculator to assist financial institutions in the calculation of data field values required for reporting HMDA data. According to the CFPB, the HMDA Check Digit Tool and the Rate Spread Calculator will remain available to financial institutions throughout the 2018 collection period and beyond. As previously covered by InfoBytes, new HMDA data collection and reporting requirements under the amendments to Regulation C became effective January 1, 2018.
Also on December 27, the CFPB published a final rule increasing the asset-size exemption threshold under HMDA for financial institutions. As of January 1, 2018, banks, savings associations, and credit unions with assets of $45 million or less as of December 31, 2017 are exempt from collecting data in 2018. Regulation C requires the CFPB to adjust the asset threshold based on the year-to-year change in the average of the CPI–W (not seasonally adjusted) for each 12-month period ending in November, rounded to the nearest million. During the 12-month period ending in November 2017, the CPI–W increased by 2.1 percent, resulting in an increase in the threshold from $44 million to $45 million.
FHFA Requests Input on GSE Credit Score Requirements; Releases 2018 Scorecard
On December 20, the Federal Housing Financial Agency (FHFA) announced a Request for Input (RFI) seeking feedback from interested parties regarding how Fannie Mae and Freddie Mac (the GSEs) should update their current credit score requirements. Specifically, the GSEs plan to stop using the Classic FICO credit score model and to replace it with one of four options. These options include (i) requiring the use of either the FICO 9 credit score model or the VantageScore 3.0 credit score model; (ii) requiring the use of both the FICO 9 and the VantageScore 3.0 credit score models; (iii) allowing lenders to choose between either the FICO 9 or the VantageScore 3.0 credit score models; or (iv) allowing lenders to deliver multiple scores through a waterfall approach that would establish a primary and a secondary score. The FHFA’s RFI asks interested parties to provide feedback on these options by responding to 22 questions outlined in the RFI by February 20.
On December 21, FHFA released the 2018 Scorecard outlining specific conservatorship priorities for the GSEs and their joint venture, Common Securitization Solutions, LLC (CSS). The 2018 Scorecard continues to identify many of the priorities outlined in the 2017 Scorecard. In addition, the 2018 Scorecard highlights the FHFA’s focus on gathering information to support its assessment of single-family rental strategies and extends the timeline for implementation of the Single Security Initiative on the Common Securitization Platform to the second quarter of 2019.
Arguments Heard in English Litigation; CFPB Announces Relaxed Compliance Requirements for HMDA; Other Proposed Rulemakings
On December 22, Judge Timothy Kelley heard arguments from both parties related to Leandra English’s litigation against President Trump and Mick Mulvaney. Judge Kelley did not rule on the matter at the close of the hearing. As previously covered by InfoBytes, English filed an amended complaint for declaratory and injunctive relief and a motion for preliminary injunction on December 6.
In response to English’s new arguments, the defendants filed an opposition motion on December 18. Among other things, the response counters an argument—raised by English for the first time in her amended complaint—that the Federal Vacancies Reform Act (FVRA) cannot be used to appoint an acting CFPB Director because the Director is also a member of the FDIC. Defendants responded that the FVRA provision excluding appointments to independent multi-member boards or commissions only applies to direct appointments and not to positions that serve as “ex officio” members, as the CFPB Director does on the FDIC. The defendants go on to explain that English’s interpretation would prevent the use of FVRA to fill multiple Cabinet and other high-ranking Executive Branch positions that serve as ex officio members of independent agencies. The defendants also alleged that English failed to satisfy the requirements of the federal quo warranto statute – the exclusive means, according to the defendants, for directly challenging Mulvaney’s authority to perform as Acting Director of the CFPB. English replied to the defendant’s opposition motion on December 21.
Throughout the week, the CFPB took action regarding current and future rulemakings:
HMDA. On December 21, the CFPB issued a statement regarding compliance with the Home Mortgage Disclosure Act (HMDA) final rule and amendments to the HMDA final rule. Although the Bureau did not delay the January 1, 2018 effective date as some had hoped, it acknowledged the difficulties of coming into compliance with the new requirements, stating that the Bureau “does not intend to require data resubmission unless data errors are material or assess penalties with respect to errors for data collected in 2018 and reported in 2019.” According to the CFPB, compliance with the HMDA requirements pose “significant system and operational challenges” and therefore, institutions should focus the 2018 data collection on identifying areas for improvement in their HMDA compliance management systems for future years. The Bureau further advised that it expects that supervisory examinations of 2018 HMDA data will be “diagnostic” to help “identify compliance weaknesses, and will credit good-faith compliance efforts.” However, institutions will still use the CFPB’s new HMDA Platform for data collected in 2017. The FDIC and the OCC issued similar announcements, Financial Institution Letter FIL-63-2017 and OCC Bulletin 2017-62 respectively, and other regulators are expected to do the same.
The Bureau’s stated intent to focus on “good-faith compliance efforts” and “material” errors in the early days of the new HMDA requirements is similar to the approach taken for implementation of the Ability-to-Repay/Qualified Mortgage Rule and the TILA-RESPA Integrated Disclosure Rule. While this flexible approach is generally beneficial for lenders and consumers, it does produce some uncertainty over what will be considered “good faith” or “material.”
The Bureau also announced its intent to engage in additional HMDA rulemaking that may (i) re-examine the criteria determining whether institutions are required to report data; (ii) adjust the requirements related to reporting certain types of transactions; and (iii) re-evaluate the required reporting of additional information beyond the data points required in HMDA, as amended by the Dodd-Frank Act.
Prepaid Accounts. On December 21, the CFPB also issued a statement on the final rule covering prepaid accounts and the proposed amendments to that rule. In the statement, the CFPB announced that it intends to adopt final amendments “soon after the new year” and that it expects to further extend the April 1, 2018 effective date to allow more time for implementation. The Bureau did not give details on the nature of the amendments or the length of the expected extension.
Debt Collection. On December 14, OMB released a Notice of Action, which reflected that the CFPB withdrew its plan to conduct a survey related to debt collection disclosures of 8,000 individuals. According to OMB’s notice, the CFPB withdrew the plan because “Bureau leadership would like to reconsider the information collection in connection with its review of the ongoing related rulemaking.”
Federal Reserve Issues Consent Order to Bank for BSA/AML Compliance Deficiencies
On December 14, the Federal Reserve Board (Fed) entered into a consent order with an international bank regarding alleged deficiencies in the bank’s New York branch (Branch) Bank Secrecy Act and other anti-money laundering (BSA/AML) compliance and risk management. The consent order also relates to a 2009 written agreement among the bank, the Branch and the predecessor of the New York State Department of Financial Services, which cited BSA/AML compliance and risk management deficiencies identified by examiners in regards to the Branch’s correspondent banking services and U.S. dollar funds transfer clearing. In 2016, a Fed examination found that the bank and the Branch had not achieved full compliance with the requirements in the 2009 agreement.
The 2017 order, among other things, requires the bank and Branch to submit a written governance plan to achieve compliance with BSA/AML requirements, and to engage an independent third party acceptable to the Fed to conduct and report on a comprehensive review of Branch’s BSA/AML compliance. Within 60 days of the report findings, the bank and Branch must submit an enhanced compliance program plan, an enhanced customer due diligence program plan, and a program to ensure accurate suspicious activity monitoring and reporting.
Fannie Mae Updates Selling Guide with Underwriting Information on Borrower Credit Freezes
On December 19, Fannie Mae announced updates to its Selling Guide, including guidance related to underwriting a loan for borrowers who have frozen their credit files at one or more of the three national credit repositories. The Selling Guide now states that a credit report is acceptable for manual underwriting or “Desktop Underwriter” when a borrower’s credit information is frozen at only one of the credit repositories as long as credit data is available from two repositories, a credit score is obtained from at least one of those two repositories, and the lender requested a three in-file merged report. If the borrower’s credit file is frozen at two or more of the credit repositories, the loan will not be eligible for either form of underwriting. Other notable updates to the Selling Guide include, (i) adding requirements on premium pricing to the mortgage eligibility policy; (ii) relief from the enforcement of selling representations and warranties for mortgages that are subject to a disaster-related forbearance plan, where the disaster impacting the loan occurred on or after August 25, 2017 and other requirements are met; (iii) additional details about minimum requirements for internal audit and management controls for all seller/servicers; and (iv) consolidation in the Selling Guide of individual mortgage loan file records retention provisions from the Servicing Guide (as previously covered by InfoBytes here).