What compliance changes will 2019 bring?


The new year will see more than the implementation of S.2155. Here’s a rundown of what community banks can expect.

By Mary Thorson Wright

Although newborn compliance rules for 2019 look scarcer than in previous years, community banks will have more than enough challenges digesting long-awaited regulatory relief efforts, monitoring the effectiveness of compliance systems and practices, and managing the final vestiges of the Dodd-Frank Act and other previously ratified rules. Not surprisingly, the steps community banks have taken and should be taking now to meet those objectives are the hallmarks of successful compliance performance.

Changes to data reporting under HMDA

The Home Mortgage Disclosure Act (HMDA) is the gift that keeps on giving. The HMDA Rule, issued on Oct. 15, 2015, requires covered institutions to collect 110 unique data fields on most residential mortgage loan applications, unless the institution qualifies for the partial exemption provided in the Economic Growth, Regulatory Relief, and Consumer Protection Act (S.2155). Collection of the new data points began on Jan. 1, 2018, and they must be reported by March 1, 2019. Jan. 1, 2019, marked the effective date for changes to enforcement provisions and additional amendments to reporting provisions; however, there is an interagency agreement to not assess penalties for errors in HMDA data collected in 2018 and reported in 2019, with no resubmission required for that period unless errors are found to be material. One of the best resources for HMDA data collection and reporting continues to be the Federal Financial Institutions Examination Council’s A Guide to HMDA Reporting: Getting It Right!

Quick stat


of banks and credit unions that don’t anticipate a likely reduction in regulatory burden, despite the passing of S.2155

The Bureau of Consumer Financial Protection (BCFP) adopted a new safe harbor provision to protect financial institutions that satisfy certain conditions from liability for HMDA and Regulation C violations for errors and omissions in submitted data. If a financial institution makes a good-faith effort to record all required data fully and accurately within 30 calendar days after the end of each calendar quarter, and some data are nevertheless inaccurate or incomplete, the inaccuracy or omission is not a violation provided that the institution corrects or completes the data prior to submitting its annual loan application register.

“Nonetheless, we’re not done with HMDA,” cautions Barbara Boccia, senior director of advisory services and regulatory relations at Wolters Kluwer. “The BCFP will still need to decide what data will be public. Acting director Mick Mulvaney has signaled the bureau will also revisit all of the 2015 changes in 2019.”

S.2155 included some changes to HMDA reporting, most notably a reduction in the data that smaller financial institutions must collect and report. Because banks began preparations for the expanded HMDA reporting following the 2015 rule, many financial institutions wish the passage of the regulatory relief legislation mid-2018 would have come sooner.

“It will be interesting to see how banks that do not have to implement the new data fields will handle the change,” says Julia De France, a director at RSM US LLP. “We’ll also need to see how the loan software vendors deal with it. They may have to have two products, one for banks required to collect and report all the data, and one for banks that are not required to report all the data and desire reduced data collection.”

“Expect more compliance management system focus from regulators.”
—Julia De France, RSM US LLP

De France encourages community banks to fully evaluate the changes. How will this affect banks to undo just part, but not all, of what was changed for 2018? Regulatory guidance and its timing will be key factors. Depending on the timeliness, could the political landscape have changed before the reforms can be effectuated? From a change management and operational standpoint, how many times can a community bank change direction on its staff and keep their confidence level and technical abilities up to par?

De France also observes that, from a fair lending standpoint, there could now be two sets of industry data. How might that affect data analysis and peer comparisons when you don’t have apples to apples anymore?

TILA threshold adjustments

The BCFP is required to annually calculate the inflation-adjusted dollar amounts for several provisions in Regulation Z, which implements the Truth in Lending Act (TILA). On Aug. 27, 2018, it published a final rule amending Regulation Z under the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), the Home Ownership and Equity Protection Act of 1994 (HOEPA) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The adjustments are based on the annual percentage change reflected in the Consumer Price Index (CPI) in effect on June 1, 2018, and are effective Jan. 1, 2019.

Prepaid accounts under EFTA and TILA

As Independent Banker reported in January 2018, the rule primarily amended Regulation E, which implements the Electronic Fund Transfer Act (EFTA), and made a minor modification to Regulation Z (TILA) for accounts with an overdraft feature. While the original rule was effective on Oct. 1, 2017, it has been extended twice, which brings the effective date to April 1, 2019. The BCFP is finalizing modifications to several aspects of that rule, including error resolution and limitations on liability for prepaid accounts where the financial institution has not successfully completed its consumer identification and verification process; application of the rule’s credit-related provisions to digital wallets that are capable of storing funds; certain other clarifications and minor adjustments; technical corrections; and the extension of the overall effective date to April 1, 2019. The agency released an unofficial redline of the 2018 amendments to assist industry and other stakeholders in reviewing the changes the final rule makes to its 2016 Prepaid Accounts Final Rule.

Compliance with the prepaid rule applied to prepaid accounts beginning Oct. 1, 2017, and prepaid account issuers were required to submit all their prepaid account agreements to the BCFP beginning Oct. 1, 2018. The scope of examinations in 2019 should begin to cover the requirements.


With S.2155 passed, what next?

The bipartisan financial regulatory relief bill was signed into law May 24, 2018. Some of its provisions were written to take effect immediately, while others have later specified effective dates or are open-ended, to be determined by rule-making. Financial institutions should carefully review it in its entirety, which includes compliance and much more. The ICBA published a comprehensive matrix to track implementation of S.2155 provisions that affect community banks.

Managing risk will be as important, if not more important than ever. Despite the bill’s name, community banks need to be in sync with the focus on risk management while staying the course on technical compliance, and it appears most have no false illusions. In late 2018, Wolters Kluwer conducted a survey of 582 banks and credit unions. Despite the passage of S.2155, 62 percent of respondents indicated they don’t anticipate a likely reduction in regulatory burden.

“Consistent with the new examination rating system,” De France forecasts, “expect more compliance management system (CMS) focus from regulators as they move from examinations less concentrated on technical data and more on the change management process, implementation plans, oversight sufficiency, training and the testing/retesting process.”

Boccia emphasizes that enforcement actions have not diminished, and community banks need to keep internal controls strong for fair lending; Unfair, Deceptive, or Abusive Acts or Practices Act (UDAAP); cybersecurity; vendor management; complaints; and TILA-RESPA Integrated Disclosure (TRID) management. She encourages compliance officers to communicate in all directions and to develop efficient, effective, clear and simple tools, such as dashboards to enhance communications with lines of business and the board of directors. Policies, procedures, training and reporting must be institution-specific, customized to products, services and the bank’s business model.

Keep your foot on the gas

Both Julia De France of RSM US LLP and Barbara Boccia of Wolters Kluwer agree that a robust approach to compliance in 2019 will benefit community banks:

  • This is not the time to back off, regulatory reform or not.
  • Focus on CMS soundness, policies, training, change management and board involvement.
  • Look for parity among regulatory requirements, bank policies and procedures, and actual practices.
  • Watch for additional guidance on HMDA, and a review and possible realignment of the Community Reinvestment Act (CRA).
  • Sort out S.2155. What applies? Ask yourself, “What must we do for compliance and beyond?”

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