A view of 2018’s regulatory landscape

Prepare to comply in the areas of real estate, data collection and more.

By Mary Thorson Wright

Sounds of merrymaking no longer reverberate through the halls, and holiday decorations are packed away. Now is the time to dive into compliance management for 2018.

Prepping for changes to the Home Mortgage Disclosure Act (Regulation C) was the major task of 2017. Jan. 1, 2018 is the effective date for most provisions related to institutional and transactional coverage, as well as data collection, recording, reporting and disclosure.

The Federal Financial Institutions Examination Council (FFIEC) announced new FFIEC HMDA Examiner Transaction Testing Guidelines for all financial institutions that report HMDA data.

The guidelines allow examiners in the field to sample reported transactions, measure their completeness and accuracy against established thresholds, and direct the institution to correct and resubmit its HMDA data. The new guidelines establish a 10 percent field error resubmission threshold for reporters with loan application register (LAR) counts of 100 or less, many of which are community banks.

More HMDA changes become effective in 2018 for reporting beginning in 2019. The 2017 HMDA Final Rule temporarily increases the threshold for collecting and reporting data with respect to open-end lines of credit from 100 to 500 for the 2018 and 2019 calendar years. Reporters originating fewer than 500 open-end lines of credit in either of the two preceding years will not be required to begin collecting such data until Jan. 1, 2020.

Equal Credit Opportunity Act Data Collection (Regulation B)
Regulation B, its commentary and its appendices were amended in October 2017, and the revision affects when and how a creditor may collect information regarding the applicant’s ethnicity, race and sex. The creditors affected by this rule are primarily those making mortgage loans subject to Regulation B §1002.13 (collecting government monitoring information), which applies to purchase and refinance transactions involving an applicant’s primary residence. The revision will allow creditors to collect an applicant’s information using either the aggregate ethnicity and race categories or disaggregate ethnicity and race categories and subcategories of Appendix B to Regulation C as amended by the 2015 HMDA Final Rule.

Customer due diligence rules
New Bank Secrecy Act/Anti-Money Laundering (BSA/AML) rules to clarify and strengthen customer due diligence (CDD) requirements become mandatory on May 11, 2018. Under prior rules,
financial institutions were not required to determine the identity of the individuals who own or control their legal entity customers (also known as beneficial owners).
The Financial Crimes Enforcement Network (FinCEN) names four core elements of CDD that should be included in the BSA/AML program for all covered financial institutions:

Customer identification and verification
Beneficial ownership identification and verification
Understanding the nature and purpose of customer relationships to develop a customer-risk profile

Ongoing monitoring for reporting suspicious transactions, and maintaining and updating customer information

A bank’s BSA/AML program structure should address the new enhanced rules. Under the new CDD rules, a bank must maintain written procedures reasonably designed to identify and verify the beneficial owners of legal entity customers. They must have appropriate risk-based procedures to conduct ongoing CDD activities, including monitoring to identify and report suspicious transactions, and creating and maintaining customer information records.

Prepaid accounts and the Electronic Fund Transfer Act (Regulation E) and Truth in Lending Act (Regulation Z)
In October 2016, the Consumer Financial Protection Bureau (CFPB) issued a final rule creating federal consumer protections for prepaid financial products under regulations E and Z. Compliance with the Prepaid Rule became effective beginning Oct. 1, 2017, making it a target for compliance examinations in 2018. The CFPB has provided compliance resources for the rule on its website.

The rule primarily amended Regulation E and made a minor modification to Regulation Z for accounts with an overdraft feature. Under the rule, prepaid accounts include traditional prepaid cards; mobile wallets; person-to-person payment products; other electronic accounts that can store funds; payroll cards; student financial aid disbursement cards; tax refund cards; and certain federal, state and local government benefit cards, such as those used to distribute Social Security benefits and unemployment insurance.

For Regulation E, the rule adds “prepaid account” to the definition of “account,” and requires specific disclosures, periodic statements or a periodic statement alternative, submission of new and amended prepaid account agreements and notification of withdrawn agreements to the CFPB, and compliance with limited-liability and error-resolution requirements. The rule amends Regulation Z to cover any credit feature offered with a prepaid account by the account issuer, its affiliate or its business partner, and credit can be accessed through a transaction conducted with the prepaid card.

Compliance with the Prepaid Rule applied to prepaid accounts starting Oct. 1, 2017. Prepaid account issuers must submit all their prepaid account agreements to the CFPB beginning Oct. 1, 2018.

FinCEN advisory to real estate firms and professionals
In August 2017, FinCEN issued an advisory (FIN-2017-A003) to provide financial institutions and the real estate industry with information on money-laundering risks associated with certain real estate transactions. The advisory emphasizes the need to identify and report suspicious activity related to real estate transactions used by criminals, such as shell companies, to launder money.

The advisory includes Suspicious Activity Report (SAR) directions and specific terms to be included in the SAR to indicate a connection between the suspicious activity being reported and real estate property.

When it comes to compliance, community banks never have to worry about being idle. Step up boldly to the challenges we know are coming in the new year, and expect some surprises.

Mary Thorson Wright, a former Federal Reserve examiner, is a financial writer in Virginia.

Compliance calendar

A quick look at upcoming regulatory changes

April 1, 2018

Effective date for final rule implementing requirements for prepaid accounts (Regulation E) and for Mortgage Servicing Amendment (regulations X and Z, and FDCPA)

May 11, 2018

Effective date for customer due-diligence requirements (beneficial owner rule)

Visit icba.org/compliance/regulatory-calendar for more.