INDUSTRY INSIGHTS | WINTER 2011/2012 EFFECTThe Compliance Changes Keep Coming for Financial Institutions
by John ZasadaThe advent of the Consumer Financial Protection Bureau (CFPB) in July has meant big changes for financial institutions’ consumer lending programs. Lending compliance, as we know it, is undergoing a transformation—new rules, new enforcement authority, everything seems to be in flux.
The recent regulatory changes are cumulatively more complex and comprehensive than ever before, and the window in which to comply continues to shrink. On a single day last year, the Federal Reserve issued more than a thousand pages of proposed and interim rules on Regulation Z alone.
We’re also seeing changes to the same regulations multiple times. In effect, your lending department must implement measures to comply with amendments to amendments. For instance, much of the last year was spent deciphering and applying the new Credit Card Accountability Responsibility and Disclosure Act (Credit CARD Act) provisions. And yet, one of the areas the CFPB will tackle is revamping credit card disclosures.
Let’s review some of the key areas of focus and change we’ve seen this year.
Regulation Z
Regulation Z, established by the Federal Reserve, serves to implement requirements of the
Truth in Lending Act (TILA), focusing on consumer credit protections. There have been dozens of amendments, and proposed amendments, and rescinded proposed amendments to Regulation Z in the past 18 months, and many impact real estate lending disclosures.
This year, we saw financial institutions begin to use new Regulation Z disclosures regarding mortgage payment changes and the sale/transfer of mortgages. In addition, Regulation Z now restricts how loan originators are compensated and prohibits them from steering consumers toward loans not in their interest.
RESPA
Comprehensive amendments have been made to the
Real Estate Settlement Procedures Act (RESPA). As a result, lenders are now using new Good Faith Estimate (GFE) and Settlement Statement (HUD-1) forms for real estate loans.
Additionally, the CFPB is currently working on combining Regulation Z and RESPA disclosures for certain real estate loans, so consumers receive one disclosure instead of two. The CFPB has already released four versions of a possible combined disclosure and solicited feedback, much of which has been positive.
Risk-based pricing notices
Back in January, Regulation V of the
Fair Credit Reporting Act (FCRA) required a new disclosure to a consumer when, based on information in a consumer report, a financial institution grants credit on terms that are materially less favorable than the most favorable terms available to a substantial proportion of other consumers. Just seven months later, financial institutions were required to
revamp the risk-based pricing notice to include credit scores.
Dodd-Frank
The biggest lending compliance changes of all could still be a year or two away, a result of the
Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). The act requires financial institutions to collect and report more than a dozen new pieces of information, such as credit scores and collateral property value, as part of the
Home Mortgage Disclosure Act (HMDA)
Loan Application Register.
It’s seems pretty clear the next couple of years will be a continuation of the recent trend of increasing regulatory compliance for lenders. Bank and credit union management and executives are understandably overwhelmed by these lengthy, confusing, and constantly changing rules. Here’s how I might approach it:
- Get familiar with the rules and how they will impact your institution.
- Prepare a plan as to how the institution will comply.
- Get buy-in from senior management.
- Prepare your institution for additional training.
- Look to someone you trust to help you implement the details.