The next several years are expected to put more
excitement in our compliance rollercoaster ride
with compressed time frames, new and revised
rules, required Congressional studies, and new
approaches to examinations. Putting the right
regulatory change framework in place will help
compliance officers stay on track.
The Dodd-Frank Act will bring about many changes
to banks’ lending operations, as we all know. This
article will explain the coming requirements, but
we’ll also talk about the fair lending implications
of additional information becoming available to
regulators, community groups, and the public.
Fair lending has been a perennial high-risk
regulation—so what is all this talk about “renewed
emphasis”? This article examines where regulatory
agencies stand on fair lending and what that
means for compliance professionals.
We are entering a new era of consumer
compliance. This article will demonstrate the
expansion of consumer protection compliance,
suggesting that the regulatory focus is growing
from lending disclosures and nondiscrimination
in lending to “fair banking,” and that the pace of
enforcement actions will continue if not increase.
Surviving the Rollercoaster of Regulatory Change By MAry Clouthier And edwArd w. BAde, CrCM, CrP
Hold On To Your Hats!
8 | ABA BANK compliANce | JANUARY-FeBRUARY 2011
Ascomplianceofficers,wehavelongjokedaboutallthehatsthat wemustwear.Recentlythe“regulatorychangemanagement”hathas takenonmoreprominence.Weallrecognizethatourindustryisina timeofunprecedentedregulatorychange.Thelasttwoyearshavebeena
challenging ride, with ups and downs. With the enactment of the Dodd-Frank Wall Street
Reform and Consumer Protection Act, the next several years are expected to put more
excitement in our compliance rollercoaster ride with compressed time frames, new and
revised rules, required Congressional studies, and new approaches to examinations. There
may be times when we feel like we are in freefall. But putting the right regulatory change
framework in place will lay the rails to stay on track to ensure successful compliance.
There are many effective approaches to managing regulatory change. Whether your financial institution manages the
process within a centralized enterprise compliance function,
in a decentralized line-of-business (LOB) manner, or by using
some combination of the two, you should include some common components in your program to ensure success. Following
are the four critical elements:
■■Identification—becoming aware of relevant new and changed
rules, regulations, and guidance.
■■Impact analysis—assessing regulatory changes and determining how they will impact each line of business.
effectively design controls to ensure compliance with
the regulatory changes.
■■Integration—ensuring immediate compliance testing and incorporating it into ongoing
Identification of Regulatory
Developments: the Curves Keep
Staying abreast of regulatory changes is
critical to an effective regulatory change
management program. You will be well
served to think through a strat-
egy of exactly what you want
to capture. Give consideration
to the types of publications,
which agencies, and what areas
(e.g., consumer protection, information technology, safety and
soundness, trust, etc.) should be included.
No doubt you will want to capture final rules! But are you
also interested in summarizing proposed rules, interagency guidance, international rulings, examination procedure updates, and
agency-specific transmittals? Will you track safety and soundness
issuances, or just consumer protection? A likely reality is that
there will be so many changes and updates coming so quickly
that many a financial institution will have to strategize about
the approach that will best meet its needs with a reasonable
amount of resources that the bank can devote to the process.
Perhaps it isn’t feasible to document all proposed rules in the
same amount of detail as final rules, but is it feasible to include at
least a notation of the proposal, its comment date deadline, and
a link? You might want to consider maintaining a running log of
all issuances with a defined minimum amount of detail included.
You can easily use an Excel spreadsheet for this purpose (refer
to Exhibit 1). In this example, the“category” column denotes the
affected line of business. “General banking” or “S&S” can be used
to capture issuances that have more of a safety and soundness
impact versus consumer protection. The“status” column is used
to denote the type of issuance by category (e.g., final rule, proposed rule, agency guidance, or examination procedure update).
By including a link to the source document in the “summary”
column, you ensure that anyone on your distribution list can
easily get more detail when he or she needs it.
Within the same spreadsheet, itis helpful to include a tab
with the final rules described in more detail. In addition to a
summary and link, you may also want to maintain a status
column, as well as risk indicators for the impact. This type
Magically Expanding LARs:
■■ The channel through which the application was made.
Twill be driven by both increased compliance requirements and significant financial impacts. Increased transparency of banks’lending operations was one of Congress’goals when passing the act;it will be accomplished partly by expanding the scope of data that must be collected and submitted under HMDA. 14 | ABA BANK compliANce | JANUAR Y-FeBRUAR Y 2011
■■ The applicants’ (borrowers’) credit scores.
The Expanding HMDA-LAR
Amendments to the Home Mortgage Di
statute were made in Dodd-Frank Act Se
other things, that section transfers respon
regulations from the Federal Reserve Boa
bureau, not the Fed, will make these chan
But we have the statutory language to g
a bit about what is coming.
This is the firstquestion many people ask
the way so we can understand how to begin
statute was amended as follow
Institutions shall not be
new data … before the firstJa
after the end of the 9-month p
the date on which regulation
Bureau in final form.1
Let’s say the CFPB is reall
final regulations on the earlie
meaning it would have to b
If the CFPB waits until Ma
issue final regulations, then the first Januar
after would be January 1, 2014, meaning n
the first time in 2013 (and reported in 20
This is certainly a little confusing, but p
rule’s window of opportunity (July 21, 2
2012) to determine whether new data mu
More Data to Be Collected and S
The lastmajor expansion of HMDA was
information, a HOEPA indicator, and lie
items, were added. This time around, ev
added to the HMDA laundry list.
■■ The loan’s (or proposed loan’s) term, in months.
■■ Actual or proposed term (in months) of any introductory
period after which the interest rate may change.
■■ An indicator of whether there are contractual terms allowing the borrower to make payments other than fully
amortizing payments at any time during the term of the
■■ A SAFE Act unique identifier that identifies the loan
■■ A universal loan identifier.
was in 2004,
data is being
A Renewed Emphasis on Fair Lending
ingandcivilenforcementsection.A thedivision“isdustingofftheFair theEqualCreditOpportunityAct, upfederaleffortstoinvestigated fraudulentlendingandservicing therenewedfocusonreversere redliningoccurswhenthelend todobusinessinsidethered steadtargetsitsresidentsfor practices,e.g.,higherfeesa ;Activelypromotingaw newed”commitment outreachefforttosend fairlendingunitisind ness,3includingthefol •Deliveringspeeches country.Theunit’sov toinformconsumers and( 2)toappriseth responsibilities.•Servingasco-cha DepartmentofHo Development(HUeralReserve,ofano workinggroupthatwasconvenedbyth EnforcementTaskForce.4InApril2010 groupjoinedtheIllinoisattorneygener lendingforuminChicagothatfeatured grounddiscussingtheissuestheyarese •Strengtheningrelationshipswithother andstatepartners,includingstateattor speechtotheBrookingsInstitution,5Pe theunithasstartedtofundamentallyre tionshipsinlargeparttobuildthepipe thenumberandqualityoffairlending #2:Dedicatingmoreresourcesandspecializedstaff. additiontocreatinganewunit,theDOJh tionalresourcestoensurethatitiseffective nforcementmission.Theincreasedstaffingw investigativeandenforcementteamtomoret JANUARY-FEBRUARY2011|ABABANK
✔✔ TONEFROMTHETOPefromthetopwillbemea- aattheDOJ.Ofcourse,the oleinsettingthetone,sowe romtheiractivities.Finally, thatinfluencesthistone. iesofthecurrentfinancial rityinitsCivilRightsDivi- hree-pronged”approachto motinga“renewed”agenda dedicatingmoreresources ( 3)stepping airlendingthe #1:Promotingits“renewed”agendafor enforcementoffairlendinglaws:As-hasustpshesinessingmeasuresto ; vilRightsDivision’shous- Fair lending has been a perennial high-risk regulation—so what is all this talk about “renewed emphasis”?
The New Era of Consumer Compliance
By Jeanine Catalano
We are entering a ne w era of consumer compliance, one that will require boards of directors to make increasingly difficult decisions and compliance officers to expand their role.
Key Evolutionary Points
DecaDe 2: 1978–1987
DecaDe 1: 1968–1977
Before this decade began, consumers and consumer groups were
complaining about bank practices and demanding legislation.
Some of their wishes came true with the laws passed in 1968 and
in subsequent years. The Consumer Credit Protection Act (CCPA)
of 1968 was the first significantconsumer protection legislation
enacted, and it included what became a cornerstone of compliance:
the Truth in Lending Act (TILA). The CCPA expanded throughout
the next 10 years to include other titles, including, for example,
the Equal Credit Opportunity Act (ECOA) and the Fair Credit
Reporting Act (FCRA).
The TILA, ECOA, and FCRA sought to protect consumers by
increasing transparency in consumer credit. The TILA required
that consumers be informed of the cost of credit and that all lenders use a uniform method of calculating and a common way of
disclosing the cost of credit. The TILA also gave consumers certain
rights regarding billing errors and the ability to rescind certain
transactions. The ECOA, among other things, prohibited many
kinds of discrimination in lending and gave applicants the right
to know why their credit applications were denied.
To arrive at a description of and suggest ways to address compliance in the future,this article will first
highlight the key evolutionary points in the history of consumer compliance, noting its bold start in the
late 1960s, followed by years of relentlessly expanded requirements and increasingly costly enforcement
actions.The purpose in highlighting these points will be to demonstrate how the path of consumer
compliance brought us to the present and where the path will take us going forward. This article will
demonstrate the expansion of consumer protection compliance,suggesting that the regulatory focus
is growing from lending disclosures and nondiscrimination in lending to “fair banking,” and that the
pace of enforcement actionswill continue if not increase.Considering this trajectory,the article will
then suggest how consumer compliance will change going forward and how compliance officers can
prepare for thisnew world. Because transitioning to what will be a new world of compliance is not a
job for compliance officers alone, key messages for boards of directors are provided at the conclusion
of the article.
In 1968 Congress also passed the Fair Housing Act and during
subsequent years in this firstdecade of compliance, passed other
laws such as the Home Mortgage Disclosure Act (HMDA) and
the Real Estate Settlement Procedures Act (RESPA). These laws
either prohibited discrimination, required data collection that
could be used to identify geographic areas in which lending was
not occurring, or required disclosures about a single transaction.
Congress capped off this decade by passing yetanother significant law, the Community Reinvestment Act (CRA). While often
thought of as a consumer protection law, the CRA does not include
requirements that protect consumers. The CRA does, however,
seek to have an impacton geographic areas by indirectly requiring
thatfinancial institutions extend credit to people and businesses
within institutions’ communities, investing in the communities
and supporting community services.
Compared to the first decade, the second brough
activity related to consumer credit protection. F
were passed in 1978, the first year of this decade.
Congress passed the Electronic Funds Transf
the Expedited Funds Availability Act (EFA), the Ri
Privacy Act (RFPA), and the Fair Debt Collectio
(FDCPA). The EFTA required disclosures and certai
respect to electronic funds transfer transactions. Th
depository institutions to make funds deposited i
accounts available according to specified time sc
disclose their funds availability policies to their c
regulation also established rules designed to spee
and return of unpaid checks. The RFPA gave cus
tion against government access to bank account
establishing specific procedures that federal gover
ties must follow in order to obtain information f
institution about a customer’s financial records. T
limitations and duties on financial institutions pri
of information requested by federal authorities.
Of the laws passed during this decade, the FDC
most interesting when considering today’s comp
ment. The FDCPA was designed to eliminate abu
and unfair practices in the collection of debt. Some
considered to be harassing or abusive, and there
by the FDCPA, included annoying or harassing p
repeatedly or allowing the phone to ring continu
obscene, profane, or other language that abuse
listener. Italso prohibited debt collectors from c
with consumers at unusual times or at places that a
to the consumers.
In this first decade, the Federal Reserve Board published regulations to promulgate these laws (Reg. B and Reg. Z) and the federal
bank regulatory agencies developed and implemented procedures
that examiners used to determine whether or not banks complied.
Consumer voices were heard. Consumer protection compliance
came rushing out of the gate with emphases on cost-comparing
disclosures and discrimination. It was a historically important
decade because it laid the foundation for more protections and
subsequent enforcement actions in the decades ahead.
During this decade, the banking regulators contin
examinations and began to develop career paths
focusing solely on compliance risk. The agencies c
ment policies regarding violations of the TILA an
The new laws and regulations made clear that
tection was expanding, that the expansion includ
on fairness and preventing abusive actions, and th
intended to enforce consumer protection complian
was becoming an area of risk, on its way to becom
which to be reckoned.
DecaDe 3: 1988–1997
The third decade of compliance was marked by a va
consumer protection measures including deposit a
rules such as Truth in Savings (TIS) and the Teleph
28 | ABA BANK compliANce | JANUARY-FeBRUARY 2011