Capitol Comments
October 2013
When there is a deadline associated with an item, you will see this graphic:
Recent News
Banking products gain municipal advisor registration exemption
A provision in the Dodd-Frank Act requiring municipal advisors to register with the SEC and comply with regulations to be issued by the Municipal Securities Rulemaking Board raised questions as to whether community bankers providing advice to municipalities on banking products and services would have to register and comply. On Friday, September 18, 2013, the SEC finalized rules tailored to exempt banks providing advice on certain banking products and services to municipalities from registration.
According to a fact sheet issued by the SEC, the exemption does not apply to banks that:
· Engage in other municipal advisory activities such as providing advice on municipal derivatives or the issuance of municipal securities.
· Provide advice on municipal derivatives, in part because municipal derivatives were a source of significant losses by municipalities in the financial crisis.
The final rule will be effective 60 days after publication in the Federal Register.
CFPB releases report on private student loan complaints
The CFPB Student Loan Ombudsman released a report[1] analyzing complaints the CFPB has received from private student loan borrowers. According to the report, private student loan borrowers face payment processing pitfalls that can lead to increased costs, prolonged repayments, and harm to their credit profiles. The CFPB is also issuing a consumer advisory today to help certain borrowers communicate their payment preferences to servicers, so they can take better control of their student loans.
Comment: The CFPB offered some recommendations: “Given that some participants in the student loan servicing industry do not appear to have adequate means to accept payment application instructions through online servicing platforms or monthly payment coupons, confusion and additional burdensome paperwork is far too common. While some individual student loan servicers have indicated they are looking to make a number of improvements, many in the industry have been dilatory in making progress. As Congress prepares to reauthorize student loan programs under the Higher Education Act, it may be useful to assess whether certain reforms to the servicing of credit cards and mortgages (such as clear guidelines for payment application, records retention, etc.) might also be applicable to the student loan market. Unfortunately, significant problems unraveled in the mortgage servicing market that led to negative externalities for the broader economy. If industry fails to correct deficiencies in the student loan servicing market, policymakers may need to act to avoid further negative consequences for the economy.”
CFPB: Interim rule clarifies mortgage servicing rules
CFPB released a bulletin[2] and interim final rule[3] to clarify the market concerning mortgage servicing rules that take effect in January 2014. The clarifications address communications with family members after a borrower dies, contact with delinquent borrowers, and treatment of consumers who have filed for bankruptcy or invoked certain protections under the Fair Debt Collection Practices Act. The amendments also clarify the specific disclosures required before counseling for high-cost mortgage can occur. Press release[4]. The interim rule will be effective 30 days after publication in the Federal Register. This rule appears below in both the list of final rules and the list of rules open for comment.
Comment: The bulletin provides examples of servicer policies and procedures in cases when the borrower dies, including allowing for continued payment on the mortgage as well as evaluating the heir (or whomever the legal interest in the home passes to) for assumption of the mortgage and, if appropriate, for loss mitigation measures. The bulletin clarifies that the servicer rule's requirement to attempt to contact a borrower every time there's a missed payment may be met through other contact that servicers have with such borrowers, for example, when evaluating them for loss mitigation or during collection calls. The rules clarify that even if delinquent borrowers have instructed servicers to stop communicating with them pursuant to the FDCPA, certain notices and communications mandated by the CFPB servicing rules and the Dodd-Frank Act are still required. The rule exempts servicers from the requirement to provide periodic account statements and certain early intervention contacts with borrowers who are in bankruptcy while the CFPB assesses how bankruptcy law and the servicing requirements intersect.
Fannie Mae, Freddie Mac, FHA, and VA: Work with borrowers affected by government shutdown
Fannie Mae, Freddie Mac, FHA, and VA have each separately called on mortgagees and lenders to be sensitive to the financial hardships faced by borrowers as a result of the shutdown, including those borrowers who were subject to furlough, layoff, or a reduction in income related to the shutdown.
FHA: HUD No. 13-152[5]
Fannie Mae: LL-2013-08[6]
Freddie Mac: 2013-19[7]
VA: Circular 26-13-23[8]
.
Comment: Each issuance is unique. Please forward the appropriate issuances to your bank’s CEO, Compliance Officer, Chief Lending Officer, and any other appropriate staff members.
FDIC: D&O liability policies, exclusions, and indemnification for civil money penalties
The FDIC has recently noted an increase in exclusionary terms or provisions in director and officer liability insurance policies purchased by financial institutions. These exclusions may limit insurance coverage under certain circumstances, thereby increasing the potential personal exposure of board members and bank officers in civil lawsuits. An FDIC advisory[9] discusses the importance of thoroughly reviewing and understanding the risks associated with coverage exclusions contained in director and officer liability insurance policies. Additionally, the FDIC is issuing a reminder that an insured depository institution or depository institution holding company may not purchase an insurance policy that would indemnify institution-affiliated parties (IAPs) for civil money penalties assessed against them. Even if the IAP agrees to reimburse the depository institution for the cost of such coverage, the purchase of the insurance policy by the depository institution is prohibited.
Comment: If your D&O policy indemnifies institution-affiliated parties for civil money penalties, you should contact your agent.
FDIC: Importance of interest rate risk management
The FDIC is re-emphasizing the importance of prudent interest rate risk oversight and risk management processes to ensure FDIC-supervised institutions are prepared for a period of rising interest rates. FIL-46-2013.[10]
Comment: The FDIC expects banks to view interest rate risk management as an ongoing process. Route the FIL to your bank’s CEO, CFO, and Chief Risk Officer.
Fed begins supplying new design $100 note
On October 8, 2013, the Federal Reserve began supplying financial institutions with the redesigned $100 note. For more information about the new design $100 note, as well as training and educational materials, visit www.newmoney.gov. Read the Fed’s press release.[11]
Comment: Federal Reserve offices will not distribute old design $100 notes after October 7, 2013. The plastic cash pack material for the new design $100 note is in the gold-color range. The older designed notes are not being recalled, demonetized or devalued. You do not need to trade them in.
CFPB finalizes new trial disclosure policy
The CFPB finalized a new trial disclosure policy[12] that allows companies to apply for a waiver to test potential disclosure improvements on a trial basis. When the CFPB approves a specific trial, then for the agreed testing period, the CFPB will deem the testing company’s disclosure to be in compliance with, or hold it exempt from, applicable federal disclosure requirements.
Comment: The CFPB hopes to enhance consumer protection by facilitating innovation and is recognizing that in-market testing may offer valuable information to improve disclosure rules and model forms. Testing the RESPA/Reg. Z integrated mortgage disclosures in real world situations before adopting them would be useful and informative.
FFIEC agencies issue warning about Windows XP
The FFIEC agencies issued a joint statement alerting financial institutions that as of April 8, 2014, Microsoft will not provide regular security patches, technical assistance or support for the Microsoft Windows XP operating system. Continued use of Windows XP after that date could present operational risks to financial institutions, third party service providers (TSPs), and activities supported by third parties. A variety of a bank’s and its TSPs’ devices could be exposed to increased operational risk, including personal computers, servers, and ATMs. According to the statement, Banks and their TSPs are expected to “identify, assess, and manage these risks to ensure that safety, soundness, and the ability to deliver products and services are not compromised.” For more information, click here to read the joint statement.
Comment: After April 8, 2014, Microsoft WILL NOT provide support for Windows XP. No patches. No security fixes. Nothing. As soon as Microsoft issues a patch or a security update, hackers begin reverse engineering them and, if they can, they develop exploit code to attack the operating system. Hackers hope to attack before Microsoft fixes the problem. After April 8, 2014, Microsoft will not be fixing those problems, but the bad guys will continue to look for vulnerabilities to exploit. It is imperative that you stop using Microsoft XP anywhere in the bank as of April 8, 2014. And if you have employees who work from home, they should also upgrade to a newer operating system.
FinCEN: Important notice to BSA e-filers
An updated version of the Discrete (online) Report of Foreign Bank and Financial Accounts (FBAR), FinCEN 114, is now available on the BSA E-Filing System. This version now provides the ability to select or enter a late filing reason and has a new section to enter Third Party Preparer information.
FinCEN has also released a batch filing capability for the FBAR on the production BSA E-Filing System. Batch files must adhere to the BSA Electronic Filing Requirements For Report of Foreign Bank and Financial Accounts (FinCEN Report 114)
FDIC: Supervisory approach to payment processing relationships for those in higher-risk activities
The FDIC clarified (FIL-43-2013[13]) its policy and supervisory approach related to facilitating payment processing services directly, or indirectly through a third party, for merchant customers engaged in higher-risk activities.
Comment: The bottom line of this FIL is: “Facilitating payment processing for merchant customers engaged in higher-risk activities can pose risks to financial institutions; however, those that properly manage these relationships and risks are neither prohibited nor discouraged from providing payment processing services to customers operating in compliance with applicable law.” Financial institutions engaged in this activity must perform proper risk assessment, conduct due diligence, and maintain systems to monitor relationships.
If your bank engages in or plans to engage in this activity, you should review the FDIC’s Guidance For Managing Third-Party Risk.[14]
FinCEN ruling: CTRs for customer/3rd party armored car transactions
FinCEN issued an administrative ruling (FIN-2013-R001[15]) in response to issues and concerns related to FinCEN ruling FIN-2009-R002.1[16] That ruling clarified that, when an armored car service (“ACS”) is contracted to conduct transactions on behalf of a customer of a financial institution, the financial institution’s CTR filing requirements would be the same as they would be with any other third-party facilitating a transaction for a customer. Although FIN-2009-R002 is consistent with current and past policy, financial institutions and the armored car services industry have raised issues that have led FinCEN to provide an exception to CTR data collection and aggregation requirements. This exception applies only when ACS employees conduct transactions that debit or credit the account of a financial institution’s customer pursuant to instructions received from the customer or from a third party.
Comment: In FIN-2009-R002, FinCEN clarified the aggregation standards and the minimum information requirements applicable to CTRs completed on transactions conducted by an ACS on behalf of a financial institution’s customer. Specifically, a financial institution is required to (a) collect the name, date of birth, and identification information of the ACS employee that made the delivery or pick-up (the natural person conducting the transaction); and (b) complete a CTR indicating multiple transactions, if applicable, for each ACS employee who, on any business day, delivers or picks up cash in one or more transactions that, in the aggregate, exceed $10,000. All customers included in the transaction must be listed in the CTR, regardless of each customer’s individual contribution to the total amount.
OCC Directors Workshops
The OCC has announced Community Bank Directors Workshops[17] in Oklahoma City on October 29 and 30 (Risk Assessment and Credit Risk), on November 5 and 6 in Little Rock, AR (Risk Assessment and Compliance Risk) and in San Antonio on November 19 and 20 (Compliance Risk and Credit Risk).
Agencies issue GLBA guidance on reporting elder abuse
The Fed, CFTC, CFPB, FDIC, FTC, NCUA, OCC, and SEC issued guidance to financial institutions to clarify the applicability of privacy provisions of GLBA to reporting financial exploitation of older adults.
Comment: This guidance clarifies that reporting suspected financial abuse of older adults to appropriate local, state, or federal agencies does not, in general, violate the privacy provisions of the GLBA or its implementing regulations. In fact, specific privacy provisions of the GLBA and its implementing regulations permit the sharing of this type of information under appropriate circumstances without complying with notice and opt-out requirements.
Department of Labor on employee benefits for same sex spouses
The U.S. Department of Labor announced[18] new guidance interpreting the Supreme Court's decision in United States v. Windsor. In a technical release, the department's Employee Benefits Security Administration provides guidance to plans, plan sponsors, fiduciaries, participants and beneficiaries on the decision's impact on the Employee Retirement Income Security Act of 1974.
The release states that, in general, the terms "spouse" and "marriage" in Title I of ERISA and in related department regulations should be read to include same-sex couples legally married in any state or foreign jurisdiction that recognizes such marriages, regardless of where they currently live. On June 26, 2013, the Windsor decision struck down the provisions of the Defense of Marriage Act that denied federal benefits to legally married, same-sex couples.
Comment: The terms "spouse" and "marriage," do not include individuals in a formal relationship recognized by a state that is not denominated a marriage under state law, such as a domestic partnership or a civil union, regardless of whether the individuals who are in these relationships have the same rights and responsibilities as those individuals who are married under state law.