2015 National Update: Washington DC Presentation print ve… · •Reinforce obligation to review documents •Incorporate regulatory guidance from Bureau re handling of disputes

2015 Northwest Compliance Conference

October 1, 2015 Nessa Feddis

American Bankers Association

2015 National Update: More new- and regulations-from

Washington DC

Washington Update

• Mood in Washington

• Fair Credit Reporting Act

• Military Lending Act

• Small dollar loan

• Prepaid Card proposal

• UDAAP

• Fair Lending

• Miscellaneous • Debt collection

• Arbitration

• Regulation CC

Regulator’s Perspective

• Bureau dominates but is not alone

• Consumer centric • Consumer understanding

• Behavior focus

• Beyond how people think and act

• Using regulations to influence products and consumer behavior • Opt in and default

• Cooling off periods

• “ability to repay” requirement

• Summaries of costs or other new calculations

Regulator’s Perspective

• Reliance on press

• Press statement not supported by own data or underlying document

• Embargoed so reporters only have one side of story

• Enforcement as tool to “send message,” “public deterrents”

• Statutory and legal authority unnecessary

FCRA

• Bureau focus

• CRAs (including Chex)

• Furnishers

• Areas of focus

• Accuracy

• Dispute resolutions

• Compliance process

Accuracy

• Seem appropriately focused on “material” error

• Debt collectors appear to be biggest problem

Dispute Process

• Few complaints about small banks

• Transmitting documents through E-Oscar

• What are banks doing with the documents?

• What are banks doing regarding training staff to review documents?

• Includes documents dealing with other creditors. Need to protect.

• Is there up-tick in credit repair or other frivolous complaints?

• Bulletin (http://files.consumerfinance.gov/f/201309_cfpb_bulletin_furnishers.pdf)

http://files.consumerfinance.gov/f/201309_cfpb_bulletin_furnishers.pdf

Credit Scores

• Conducting credit variance study

• New credit scoring models

• Reduced weight of medical records and public records

• How will regulators view creditors using older models?

• Looking for inclusion

• Looking for disparate impact

Deposit Account Reporting Agencies

• Negative database

• Reports of accounts closed for cause

• Fraud

• Mismanagement

• Regulators view differently

• Does bank review whether fraud or mismanagement?

• How define “fraud”?

• Should there be de minimus threshold?

• About inclusion

Attorneys General Settlements with CRAs

• Focus

• Accuracy of information in reports

• CRA’s practices regarding disputes

• Reporting of medical debt


• Settlement with CRA, but implication for furnishers

• Retirement of Metro 1 data reporting format

• Authorized users must report date of birth

• Working Group to establish minimum standard to match data to consumer

• Two disputes permitted if additional documentation

• Enhancement of e-OSCAR furnisher certifications and terms of use

• Emphasize compliance with furnishers’ obligations under FCRA

• Reinforce obligation to review documents

• Incorporate regulatory guidance from Bureau re handling of disputes


Furnisher Monitoring Working Group

• ID best practices/data quality metrics for monitoring furnishers

• Report on rates of consumer complaints, furnisher disputes and responses, and dispute

outcomes (by industry, not by individual furnisher)

• Corrective action when a furnisher fails to comply with obligations regarding furnishing

data and investigating disputes

Military Lending Act

• Final amendments to MLA regulation

• Published July 22, 2015

• Highlights

• Expands types of loans covered

• Imposes 36% “MAPR”

• Imposes other significant restrictions

• Requires lender to verify military status with DOD database or consumer reporting

agency

• Significant penalties for violations


• Mandatory compliance date:

• October 3, 2016

• October 3, 2017 for credit cards. Secretary may extend an additional year

• ABA Staff analysis – (http://www.aba.com/Compliance/Mem/Documents/MLA-final-rule-

staff-analysis.pdf)

http://www.aba.com/Compliance/Mem/Documents/MLA-final-rule-staff-analysis.pdf












Background:

• Passed in 2006

• Based on 2006 DOD Report and intended to address problems military personnel and families had

with:

• Payday loans

• Auto title loans

• Tax refund anticipation loans

Current Rule Covers Closed-end Loans:

• Payday loans of $2,000 or less with a term of 91 or fewer days

• Car title loans with a term of 181 or fewer days

• Tax refund anticipation loans


Major provisions of the final rule:

• Covers all consumer credit (except mortgage loans and purchase money loans) including:

− Credit cards

− Overdraft lines of credit

− Small $ loans (with narrow exception)

− Loans to refinance a car or personal property (except for loans from insured depository institutions)

− Personal loans

• Like the existing rule, covers active duty service members and their spouses and dependents

• Creates new “military” APR (MAPR)


Limitations under Rule:

• 36 percent military annual percentage rate (MAPR) cap

− Includes finance charges, application and “participation” fees, and fees for credit-related “ancillary” products

− Requires “effective” or “historical” MAPR for open-end


Exclusion of “bona fide” credit card fees from MAPR

• “Bona fide” fees must be reasonable

• Compare fees “typically” imposed for “the same or a substantially similar product or service.”

• That no other credit card issuer charges the fee does not per se mean it is not reasonable

• If any fee charged is not bona fide, none may be excluded


Participation fees may be reasonable:

• If the amount reasonably corresponds to:

− Credit limit

− Services offered

− Other factors relating to the credit card account.

• Does not address how annual fee might correspond to interest rate


Other prohibitions:

1. Prepayment penalties

2. Waiver of right to legal recourse

3. “Other” onerous legal notice if dispute

4. Unreasonable notice as a condition for legal action

5. Liquid secured credit

6. Arbitration

7. Requirement to repay by allotment

8. Refinancing or renewing with same creditor (with exceptions)

9. Vehicle title loans (with exceptions)


Disclosure Requirements:

• Contents:

− Statement of MAPR (model language)

− Reg. Z disclosures

− Clear description of payment obligation

• Form

− Written for all

− Oral for MAPR statement and payment obligation and initial disclosure

− Oral may be provided through 800 number on application form or required disclosures

• Timing -- Before or when borrower becomes obligated or establishes an account


Identification of covered borrower:

• Eliminates safe harbor based on borrower’s declaration

• Safe harbor:

− Assessing the MLA database “directly or indirectly”

− Using information from nationwide consumer reporting agency

− May make determination 30 days prior to time consumer establishes an account


Penalties:

• Criminal penalties

• Voidance of contract

• Private right of action and civil liability

• Costs of the action

• Regulation Z violations also MLA violation


Issues:

• Having an interest rate under 36% doesn’t solve problem

− Particular problem for:

• Open-end credit

• Small-dollar loans

• Other limitations – unresolved

• Options:

− Conform all covered products, if possible

− Eliminate products not covered

− Deny access to covered borrowers

• Accessing the database

Prepaid Proposal

• Released November 13, 2014

• Published December 23, 2014

• Comments due March 23, 2015

• Follow ANPR

Prepaid Proposal

• Even if do not offer prepaid cards

• Vague definition may cover products

• Restrictions on credit and overdraft services for any covered product

Prepaid Proposal

Prepaid cards:

• Distinction from other covered accounts is unclear.

• Any account not otherwise covered which is “either issued on a prepaid basis in a specified amount” or not issued on a prepaid basis but “capable of being loaded” thereafter

• Is “redeemable” upon presentation of multiple, unaffiliated merchants for goods or services, usable at ATMs or usable for p-to-p transactions.

• Excludes gift cards

• Includes payroll cards and government benefits cards (already covered under Reg E)

Prepaid Proposal: Disclosures

• “Short-form” and “long-form”

• For branches – both provided before purchase

• For retail stores – not branches

• “Short-form” – must be available before purchase

• “Long form” – if information is available on web or on phone

• Required formats, tables, minimum fonts

• Separate requirements if oral or by phone

Prepaid Proposal: Periodic statement “light”

• Statement alternative: No statement if:

• Balance available by phone

• Electronic hx available for prior 18 months (was 60 days)

• “Written” history available for prior 18 months

• Summary of total of fees, deposits, and debits by month and year to date

Prepaid Proposal: Unauthorized use

• Modified:

• Time periods:

• Begin date customer accesses account (assuming unauthorized transaction listed),

written statement sent OR

• Within 120 days after transaction

• No need to investigate until CIP complete. Once complete, must investigate for challenged transactions including those challenged or made prior to CIP completion.

Prepaid Proposal: Overdraft and credit links

• Bank may not open a credit card accessible with prepaid card within 30 calendar days after prepaid card registration

• Treated as credit card and subject to Regulation Z

• Must provide special credit card disclosures

• Not clear whether both Regs E&Z statements required

• Fee imposed in “force pay” circumstance is “credit”

Prepaid Proposal

• Bureau posting of prepaid account agreements

• Includes fees

• Exemption for banks with fewer than 3,000 accts

• Submission of agreements to the Bureau

• Includes fee information that must be disclosed “in the form and manner

specified by the Bureau,” sent quarterly

• Bureau becomes clearing house

• Bank must post agreements on website

Small-dollar Loan Proposed Regulatory Outline

March 26 Bureau:

• Releases “outline” to regulate certain small dollar loans

• Announces convening “small business review panel”

• Types of loans:

• Payday loans

• “Some” vehicle title loans

• “Certain” open-end lines of credit

• Deposit advance loans

See: http://www.consumerfinance.gov/newsroom/cfpb-considers-proposal-to-end-payday-debt-traps 33

http://www.consumerfinance.gov/newsroom/cfpb-considers-proposal-to-end-payday-debt-traps

















Concerns:

• Inability to repay

• Repeated rolling over or refinancing

• Holding security interest in vehicle

• Access bank account for repayment

• Costly attempts to get paid through repeat access to bank account

• Short repayment timeframes


Options for:

• short-term loans (45 days)

• longer-term loans (greater than 45 days)

Options:

• Prevention OR

• Protection


• Short-term loan

• Prevention requirements:

• Determine whether ability to repay when due, after covering for “major obligations and

living expenses” and based on verification of:

• Income

• “Major financial obligations”

• Borrowing history

• 60 day cooling off between loans

• To make 2d or 3d loan within 2-month, must document improvement in financial situation

• After 3 loans, no more for 60 day.


• Short-term loan

• Protection requirements

• Consumers can’t be in debt more than 90 days in 12 months

• Rollovers limited to “2-3 loans total” followed by 60-day cooling-off period

• 2d and 3d consecutive loans only if lender “offers an affordable way out of debt

• Only for loans under $500, with only one finance charge and no vehicle as collateral,

considering the following:

• Decrease in principal so repaid after 3d loan

• “Off-ramp” after 3d loan to pay off over time without more fees


• Longer-term loans

• Greater than 45 days

• Lender collects through payments from account OR

• Hold security in vehicle and

• All-in APR is more than 36 percent



• Prevention requirements:

• Determine whether ability to repay when due, after covering for “major obligations and living

expenses” and based on verification of:

• Income

• “Major financial obligations”

• Borrowing history (same as small-dollar loan)

• If “borrower is having difficulty” no refinancing into other loan with similar terms without

documentation that circumstances have improved.



• Protection requirements:

• Two approaches: Loans between 45 days and 6 months

1. Same protections under NCUA “payday alternative loans”

• 28% interest

• Application fee no more than $20

2. Longer terms long provided monthly payment

• MAPR of 36%, Right of set-off, title loan

• SBRFA 60 days for report of day (29 Apr)

UDAP Enforcement action: Deposit Discrepancies

• Bureau, OCC, & FDIC consent orders

• Deposit discrepancies

• Total deposit amount on deposit slip different from check total – “Small $ proof

collection”

• Processor flagged discrepancies BUT bank did not adjust account to actual

amount

• No notice to consumer of practice


Focus on policy and practice and disclosures

• Bureau

Policy:

• “Limited review” when discrepancy fell “within an intermediate range” (most recently, between $5 and $25 prior to Feb 2011, between $23 and $50)

• “No review” when discrepancy fell “beneath the intermediate ranges.”

• Contrary to policy, the bank did not perform the limited review od discrepancies in the intermediate range.

Practice: • “Review” and “make adjustments” for those above certain thresholds ($50 before 2012, $25

thereafter)

• For discrepancies below “those levels” bank did not review or and credit amount on deposit slip


Focus on policy and practice and disclosures

• OCC

Policy:

• “Review procedures in order to reconcile and correct the discrepancy” for those “within a specified dollar range”

Practice: • “Failed to follow the review procedures consistently.”

• Describes a failure to reconcile and correct discrepancies without referring to any thresholds

• For those “under that specified dollar range” the bank accepted the deposit slip and amount


Disclosure:

• Bureau • Bank did not “disclose the practice relating to Deposit Discrepancies.”

• Instead, disclosed that deposits “are subject to verification” and “We reserve the right to make and adjustment…in our sole discretion, for computation of other errors to your account.”

• OCC • Agreements “failed to describe accurately the Bank’s process for resolving

these discrepancies and how resulting adjustments” were made.


UDAP

Unfair: “[C]aused substantial injury to consumers. This injury was not reasonably avoidable or outweighed by any countervailing benefit to consumers or to competition.”

Deceptive: Bank represented, expressly or impliedly, that consumer deposits were subject to verification and that they would correct deposit amount, but did not do so. It failed to “disclose or disclose adequately that the banks’ practice…resulted in consumer receiving less than full credit for their deposits.” “[F]ailure to disclose, in light of the representation made constitutes a deceptive act or practice.”


Redress and Penalties

• Refund all underpayments, regardless of threshold in policy, not less than $11 million.[Bureau to receive difference]

• OCC: customers from January 2008 through November 2013]

• Bureau: all customers who experienced a discrepancy

• Do NOT recover any over-credits

• Bank must not misrepresent their deposit processing practices

• “Compliance Committee” and “Compliance Plan”

• Written Internal Audit Program

• Board involvement


What to do?

Review practices

Are there ways to eliminate need to make adjustments?

Envelope-less ATM deposits (image ATM)

Front counter capture

Remote-deposit capture

Review disclosures;

Fair Lending

“Inclusive Communities”

• Allocation of tax credit

• Claimed Fair Housing Act violation

• “Disparate Impact”

• 5-4 Supreme Court decision recognizing disparate impact in discrimination

claim

Fair Lending

• But –

• Concern about abuse

• Must be approached carefully

Fair Lending

3-Step Burden Shifting Framework

1. Specific policy caused statistical disparate impact not explainable by

any reason other than protected characteristic such as race or

gender –

Statistics and analysis insufficient

2. Defendant can show business rationale

3. Burden shifts to plaintiff to show alternative

Fair Lending

To do:

• Consult examination guidelines to ensure compliance

• Review policies to ensure they state business rationale

• When exceptions permitted, clearly state and monitor

• Schedule audits for loans. Where disparities, ensure explanation

• ABA Fair Lending Toolbox

• ABA Staff analysis

(http://www.aba.com/Compliance/Mem/Documents/SAFCRAECOA2013July.pdf)

http://www.aba.com/Compliance/Mem/Documents/SAFCRAECOA2013July.pdf



Miscellaneous

• Debt collection

• Arbitration

• Regulation CC

• Bureau Ombudsman

QUESTIONS?