Compliance Monthly Compliance Monthly is intended to keep you informed of regulatory changes in advance of their effective date so your institution can have the necessary policies, procedures and processes in place to be compliant at the time of enactment. Information contained in Compliance Monthly is not intended to provide specific advice and guidance. You should consult your own professional services provider in connection with matters affecting your own interests. August 2020
Transcript
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Compliance MonthlyCompliance Monthly is intended to keep you informed of regulatory changes in
advance of their effective date so your institution can have the necessary policies,
procedures and processes in place to be compliant at the time of enactment.
Information contained in Compliance Monthly is not intended to provide specific
advice and guidance. You should consult your own professional services provider in
connection with matters affecting your own interests.
August 2020
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Table of ContentsACCUMULATE KNOWLEDGE, VALUE, RESOURCES
Focus of the Month 03
Regulator Roundup 06
Finalized Rules 10
Proposed Rules 14
Other Compliance News 17
AML News 20
Recommended Actions to Take 25
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Focus Of the MonthPandemic Frauds, Scams, and Other Schemes
Over the past few months, FinCEN, the FTC and other regulatory agencies have been
alerting financial institutions to various frauds, schemes and other illegal activity brought
about by the COVID-19 pandemic. This article highlights some of the recent scams.
Impostor Scams. In impostor scams, criminals impersonate organizations such as
government agencies, non-profit groups, universities, or charities to offer fraudulent
services or otherwise defraud victims. While impostor scams can take multiple forms,
the basic methodology involves an actor (1) contacting a target under the false
pretense of representing an official organization, and (2) coercing or convincing the
target to provide funds or valuable information, engage in behavior that causes the
target’s computer to be infected with malware, or spread disinformation. These
scams are used to defraud and deceive the vulnerable, including the elderly and
unemployed, through the solicitation of payments (such as digital payments and
virtual currency), donations, or personal information via email, robocalls, text
messages, etc. Red Flags to be alert to:
• Contact from a person claiming to represent a government agency by phone, or
electronic means for personal or bank account information to verify, process, or
expedite EIPs, unemployment insurance, or other benefits.
• Receipt of a document that appears to be a check or a prepaid debit card from
the U.S. Treasury for less than anticipated EIP with instructions to contact a
fraudulent agency to gain personal information.
• Unsolicited communications from purported trusted sources or government
programs related to COVID-19 requiring the viewer to click on a link to provide
personal information or E-mails addresses that do not match the name of the
sender.
• Donation solicitations from organizations that are not associated or affiliated
with reputable charities.
• Charities that do not have a history, IRS returns or financial statements.
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Focus Of the Month - continued
Money Mule Scheme. A money mule is “a person who transfers illegally acquired money on behalf of or at the direction ofanother.” Money mule schemes, including those related to the COVID-19 pandemic, span the spectrum of using unwitting,witting, or complicit money mules. The individual is motivated by his/her trust in the actual romance, job position orproposition, financial gain or an unwillingness to acknowledge his/her role. Red flags include:
• A personal bank account starts to receive transactions that do not fit the customers risk profile or transactional historyprovide and include international, convertible virtual currency or similar high-risk transactions.
• A customer opens a new business account and shortly thereafter another individual transfers funds from the account.• Customer receives multiple state unemployment payments to his/her account and/or from a state where he/she does not
reside.• Deposited funds are quickly transferred out of the account to foreign jurisdictions.• Documentation from the customer shows that the purported employer or recruiter uses a common web-based free E-mail
service instead of a company-based E-mail address.
Targeting and Exploitation of Remote Platforms and Processes. The significant migration toward remote access in thepandemic environment presents opportunities for criminals to exploit financial institutions’ remote systems and customer-facing processes. Cybercriminals and malicious state actors are targeting vulnerabilities in remote applications and virtualenvironments to steal sensitive information, compromise financial activity, and disrupt business operations. Red Flags include:• The spelling of names in account information does not match the government-issued identity at onboarding.• Pictures in identity documentation, especially areas around faces, are blurry or low resolution, or have aberrations or show
visible signs of manipulation.• Customer logins occur from a single device or Internet Protocol (IP) address across multiple unrelated accounts within a
short period of time.• Customer logins occur within a pattern of high network traffic with decreased login success rates and increased password
reset rates.• A customer calls to change the method of communication and/or authentication information.
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Focus Of the Month - continued
Phishing, Malware and Extortion. Phishing scams target individuals with communications appearing to come from legitimatesources to collect victims’ personal and financial data and potentially infect their devices by convincing the target to downloadmalicious programs. In these new schemes, phishing scammers will often reference COVID-19 themes, such as payments relatedto the Coronavirus Aid, Relief, and Economic Security (CARES) Act in the subjects and bodies of emails. Some phishing emails lurevictims by advertising ways to make money, such as through investing in convertible virtual currencies (CVCs) or via domainnames that mimic names of organizations, including those that provide or enable teleworking capabilities. Red flags include:
• Information technology enterprise activity related to transaction processes or information is connected to cyber indicators
that have been associated with possible illicit activity. Malicious cyber activity may be evident in system log files, network
traffic, or file information.
• Email addresses purportedly related to COVID-19 do not match the name of the sender.
• Emails from untrusted sources or addresses similar to legitimate telework vendor accounts offer remote application
software at no or reduced cost.
• Text messages and E-mails with embedded links.
Action Plan
As the end of the pandemic is anybody’s guess, now is a good time to revisit you account opening procedures, BSA AML
Program and ID Theft Prevention Program to incorporate this information. During the pandemic:
• Review and review policies and procedures to address increased risk within the scope of institution’s size, complexity,and risk profile.
• Review your training program to ensure it is timely and tailored to the institution’s risks and employees’ job functionsand incorporates some of the COVID frauds and scams as red flags.
• Ensure that there are adequate risk-based controls in place to prevent and detect issues including monitoring and audit.• Review your BSA AML alerts to determine if adjustments need to be made to parameters or if new alerts need to be
defined.• Provide educational information to your customer base regarding current scams and frauds.
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Regulator Roundup
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Regulator Roundup
CFPB Request for Information on the Equal Credit Opportunity Act and Regulation B
The Bureau of Consumer Financial Protection (Bureau) seeks comments and information to identify opportunities to prevent creditdiscrimination, encourage responsible innovation, promote fair, equitable, and nondiscriminatory access to credit, address potentialregulatory uncertainty, and develop viable solutions to regulatory compliance challenges under the Equal Credit Opportunity Act (ECOA) andRegulation B. Financial institutions can submit their comments by October 2, 2020 at https://www.regulations.gov/comment?D=CFPB-2020-0026-0001
On July 16., 2020, the CFPB issued an updated Complaint Bulletin, analyzing the more than 8,000 complaints it received from Januarythrough May 2020 that mention coronavirus or related terms (“coronavirus keywords”). The bulletin shows that mortgage (19 percent), creditcard (18 percent), and credit or consumer reporting (18 percent) complaints top the list of complaints the Bureau has received that mentioncoronavirus keywords. Highlights of complaints about these consumer financial products and services that mention coronavirus key words:• In 55 percent of mortgage complaints, consumers identified struggling to pay the mortgage as the issue.• In 23 percent of credit card complaints, consumers identified a problem with purchase shown or statement as the issue.• In 55 percent of credit or consumer reporting complaints, consumers identified incorrect information on their credit report as the issue.
CFPB Published Article on Military Consumer Protection
On July 15, 2020, the CFPB published an article on Military consumer protection. The article provides information on the following:• Servicemembers Civil Relief Act (SCRA)• Military Lending Act (MLA)• Fair Debt Collection Practices Act (FDCPA)• Fair Credit Reporting Act (FCRA)
Consolidated Reports of Condition and Income for Second Quarter 2020
On July 10, 2020, the agencies released guidance on CALL reporting. As the Federal Financial Institutions Examination Council (FFIEC)previously advised, the Call Report for this quarter includes revisions associated with several interim final rules and a final rule issued by oneor all of the agencies in response to the impact on the financial markets and strains on the U.S. economy as a result of the CoronavirusDisease 2019 (COVID-19). These revisions also result from certain provisions of the 2020 Coronavirus Aid, Relief, and Economic Security Act(CARES Act) (see FIL-60-2020 dated June 12, 2020). New data items related to these rulemakings and the CARES Act have been added to theCall Report this quarter. Institutions should refer to the attached separate standalone June 2020 COVID-19 Related Supplemental Instructionsaddressing these revisions. These instructions will be published to each of the FFIEC’s Call Report webpages shortly. The standaloneinstructions also incorporate reporting instructions for COVID-19-related interim final rules that took effect for the first quarter 2020 CallReport (see FIL-38-2020 dated April 9, 2020).
Consumer Financial Protection Bureau Ratifies Prior Regulatory Actions
On July 7, 2020, the Consumer Financial Protection Bureau today ratified most regulatory actions the Bureau took from January 4, 2012through June 30, 2020. The ratification of previous regulatory actions provides the financial marketplace with certainty that the rules arevalid in light of the Supreme Court decision in Seila Law.
This is a Compliance Aid issued by the Consumer Financial Protection Bureau. The questions and answers below pertain to compliance with the Home Mortgage Disclosure Act (HMDA)
Financial Regulators Issue Statement on Managing the LIBOR Transition
On July 1, 2020, the members of the Federal Financial Institutions Examination Council (FFIEC) today highlighted the risks that will result from thetransition away from LIBOR, and encouraged supervised institutions to continue their efforts to transition to alternative reference rates in order tomitigate financial, legal, operational, and consumer protection risks.
The financial services industry uses LIBOR as a reference rate for many financial products and instruments that include loans, investments, and deposits toa range of customers, as well as borrowings and derivatives. While some smaller and less complex institutions may have limited exposure to LIBOR-denominated instruments, the transition to alternative reference rates will affect almost every institution.
The statement also highlights the legal and consumer compliance risks associated with inadequate fallback language, when the contractual language doesnot contemplate LIBOR’s permanent discontinuance. Institutions should take steps to identify and address existing contracts with inadequate fallbacklanguage to mitigate potential legal risk as well as safety and soundness risk.
Financial institutions should have risk management processes in place to identify and mitigate their LIBOR transition risks that are commensurate with thesize and complexity of their exposure and third-party servicer arrangements. The statement identifies areas where supervisory staff will focus theirreviews of LIBOR transition planning and risk mitigation efforts at regulated institutions.
This rule identifies communities where the sale of flood insurance has been authorized under the National Flood Insurance Program (NFIP) that arescheduled for suspension on the effective dates listed within this rule because of noncompliance with the floodplain management requirements of theprogram. If the Federal Emergency Management Agency (FEMA) receives documentation that the community has adopted the required floodplainmanagement measures prior to the effective suspension date given in this rule, the suspension will not occur and a notice of this will be provided bypublication in the Federal Register on a subsequent date. Also, information identifying the current participation status of a community can be obtainedfrom FEMA's Community Status Book (CSB). The CSB is available at https://www.fema.gov/national-flood-insurance-program-community-status-book.• Iowa: Andover, Calamus, Camanche, Clayton, Clinton, DeWitt, Elkader, Elkport, Form Madison, Garber, Garnavillo, Goose Lake, Grand Mound,
Guttenberg, Keokuk, Lost Nation, Low Moor, Luana, Marquette, McGregor, Montrose, North Buena Vista, Saint Olaf, Strawberry Point, Toronto, Welton,and unincorporated areas of Clayton, Cllnton, and Lee counties
• Pennsylvania: Butler, Carroll Valley, Cumberland, Hamiltonban, Littlestown, Menallen, Mount Joy, Mount Pleasant, Straban, and Union
NCUA’s Chartering and Field-of-Membership Regulations Changes
On July 30, 2020, the NCUA Board unanimously approved a final rule that would help facilitate greater access to safe and affordablefinancial services by changing the agency’s chartering and field-of-membership regulations for community charter approvals, expansions,or conversions. The final rule• Re-adopts a provision to allow an applicant to designate a combined statistical area, or an individual, contiguous portion thereof, as a
well-defined local community if the chosen area has a population of 2.5 million or fewer. Credit unions that had their combinedstatistical areas removed from their fields of membership because of litigation will be contacted by the agency to determine if theywould like those reinstated. If they would, then NCUA will do so as soon as the rule is effective.
• Separately, in accordance with an August 2019 opinion and order issued by the D.C. Circuit Court of Appeals, provides furtherexplanation and support for the elimination of the requirement to serve a core-based statistical area’s core area, as provided in theagency’s 2016 field-of-membership rule.
• Clarifies existing requirements and adds an explicit provision to the NCUA’s field-of-membership regulations to address concerns aboutpotential discrimination in the selection process for combined statistical areas and core-based statistical areas.
The Board issued a final rule revising its Rules Regarding Availability of Information. The revisions clarify and update the Board’s regulations implementing
the Freedom of Information Act and the rules governing the disclosure of confidential supervisory information and other nonpublic information of the
Board. The Final Rule is effective October 20, 2020. In addition to revoking previous sections of the regulation, the final rule:
• Amends § 1041.12(b)(1) to provide that lenders must retain or be able to reproduce an image of the loan agreement for all covered loans and revokes
the remainder of the recordkeeping requirements set forth in that provision of the 2017 Payday Lending Rule;
• Amends other portions of regulatory text and commentary in the 2017 Payday Lending Rule that refer to the Mandatory Underwriting Provisions or
Truth in Lending (Regulation Z) Annual Threshold Adjustments (Credit Cards, HOEPA, and Qualified Mortgages)
The Bureau of Consumer Financial Protection (Bureau) issued a final rule amending the regulation text and official interpretations for Regulation Z, which
implements the Truth in Lending Act (TILA). The Bureau is required to calculate annually the dollar amounts for several provisions in Regulation Z; this final
rule revises, as applicable, the dollar amounts for provisions implementing TILA and amendments to TILA, including 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 Bureau is adjusting these amounts, where appropriate, based on the annual percentage
change reflected in the Consumer Price Index (CPI) in effect on June 1, 2020. The final rule is effective January 1, 2021.
The FDIC is issued regulations clarifying the law that governs the interest rates State-chartered banks and insured branches of foreign banks (collectively,
State banks) may charge. These regulations provide that State banks are authorized to charge interest at the rate permitted by the State in which the State
bank is located, or one percent in excess of the 90-day commercial paper rate, whichever is greater. The regulations also provide that whether interest on
a loan is permissible under section 27 of the Federal Deposit Insurance Act is determined at the time the loan is made, and interest on a loan permissible
under section 27 is not affected by a change in State law, a change in the relevant commercial paper rate, or the sale, assignment, or other transfer of the
loan. The final rule is effective on August 21, 2020.
Payday, Vehicle Title, and Certain High-Cost Installment Loans
The Bureau of Consumer Financial Protection (Bureau) issued a final rule to amend its regulations governing payday, vehicle title, and certain high-cost
installment loans. Specifically, the Bureau is revoking provisions of those regulations that: provide that it is an unfair and abusive practice for a lender to
make a covered short-term or longer-term balloon payment loan, including payday and vehicle title loans, without reasonably determining that consumers
have the ability to repay those loans according to their terms; prescribe mandatory underwriting requirements for making the ability-to-repay
determination; exempt certain loans from the mandatory underwriting requirements; and establish related definitions, reporting, recordkeeping, and
compliance date requirements. The Bureau is making these amendments to the regulations based on its re-evaluation of the legal and evidentiary bases
for these provisions. The final rule is effective October 20, 2020.
National Flood Insurance Program: Conforming Changes To Reflect the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12) and the Homeowners
Flood Insurance Affordability Act of 2014 (HFIAA), and Additional Clarifications for Plain Language
The final rule revises the National Flood Insurance Program (NFIP) regulations to codify certain provisions of the Biggert-Waters Flood Insurance Reform Act
of 2012 and the Homeowner Flood Insurance Affordability Act of 2014, and to clarify certain existing NFIP rules relating to NFIP operations and the Standard
Flood Insurance Policy. The final rule is effective October 1, 2021.
Loans to Executive Officers, Directors, and Principal Shareholders of Member Banks; Regulation O
On April 17, 2020, the Board issued an interim final rule to except certain loans made by June 30, 2020, that are guaranteed under the Small Business
Administration's Paycheck Protection Program from the requirements of the Federal Reserve Act and the corresponding provisions of the Board's Regulation
O. The Board is issuing this interim final rule to expand the exception to apply to PPP loans made through August 8, 2020. This interim final rule is effective
on July 16, 2020. Comments on the interim final rule must be received no later than August 31, 2020.
The proposed rule would provide that, for purposes of determining a federally insured credit union’s (FICU’s) net worthclassification under the prompt corrective action (PCA) regulations, the Board will phase-in the day-one adverse effects onregulatory capital that may result from the adoption of the current expected credit losses (CECL) accounting methodology.Consistent with regulations issued by the other federal banking agencies, the proposed rule would temporarily mitigate theadverse PCA consequences of the day-one capital adjustments, while requiring that FICUs account for CECL for otherpurposes, such as Call Reports.
The Bureau of Consumer Financial Protection (Bureau) is proposing to amend Regulation Z, which implements the Truth inLending Act, as mandated by section 108 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. Theamendments would exempt certain insured depository institutions and insured credit unions from the requirement toestablish escrow accounts for certain higher-priced mortgage loans.
On July 20, 2020, the Office of the Comptroller of the Currency (OCC) signed a proposed rule to determine when, in thecontext of a partnership between a national bank or federal savings association (bank) and a third party, the bank makes aloan and is the "true lender." Under this proposal, a bank makes a loan and is the "true lender" if, as of the date of origination,the bank (1) is named as the lender in the loan agreement or (2) funds the loan. The proposed rule would provide certaintyabout key aspects of the legal framework that applies to loans made as part of banks’ relationships with third parties. Thedeadline for comments on the proposed rule is September 3, 2020.
On July 13, 2020, the NMLS Policy Guidebook was updated as follows:o MU1 Disclosures Questions section was added back to the book.o MU1 Disclosure Explanation section was added back to the book.o Indirect Owner section was edited to say “indirect owners” throughout the narrative.
The Fiscal Service Launches A New Financial Data Website
This new website brings together 18 of the most popular federal financial datasets, including the Monthly Statement of the Public Debt,Monthly Treasury Statement, Daily Treasury Statement and Debt to the Penny. FiscalData.Treasury.gov will serve as the central location forfinancial data, giving customers the ability to:• Explore datasets on topics such as debt, revenue, and spending• Review timely and historical data, in one case dating as far back as 1790• View and analyze trends over time
On July 23, 2020, the Department of Housing and Urban Development (HUD) announced the Department will ultimately terminate theAffirmatively Furthering Fair Housing (AFFH) regulation issued in 2015, which proved to be complicated, costly, and ineffective.
On June 30, 2020, the Bureau published its Spring 2020 Agenda as part of the Spring 2020 Unified Agenda of Federal Regulatory andDeregulatory Actions, which is coordinated by the Office of Management and Budget under Executive Order 12866. The agenda lists theregulatory matters that we expect to focus on between May 1, 2020 and April 30, 2021.
FDIC Rescinds the Guidance on Supervisory Concerns and Expectations Regarding Deposit Advance Products
On May 20, 2020, the FDIC, Board of Governors of the Federal Reserve System, Office of the Comptroller of the Currency, and the NationalCredit Union Administration issued Interagency Lending Principles for Offering Responsible Small-Dollar Loans (Interagency LendingPrinciples) to encourage supervised banks, savings associations, and credit unions (collectively, “financial institutions”) to offer responsiblesmall-dollar loans to customers for both consumer and small business purposes. As discussed in its Financial Institution Letter transmittingthe Interagency Lending Principles (FIL-58-2020), the FDIC has rescinded the Start Printed Page 446862013 Deposit Advance Guidance [2]and replaced it with interagency guidance to provide uniform principles for all financial institutions.
Reminder to file the 2020 Annual Report of Blocked Property
31 C.F.R. § 501.603 of the Reporting, Procedures and Penalties Regulations (RPPR) requires holders of blocked property to provide the Office of Foreign Assets Control (OFAC) with a comprehensive list of all blocked property held as of June 30 of the current year by September 30. Persons that do not hold blocked property as of June 30 do not need to file an Annual Report of Blocked Property (ARBP). Please note that the term blocked property only applies to property that is blocked pursuant to OFAC regulations. Property that was unblocked by an OFAC general or specific license or was previously blocked pursuant to a sanctions program that was terminated on or before June 30, 2020, is not considered blocked property, and should not be reported in the ARBP. Similarly, a restricted account of a person ordinarily resident in Iran is not blocked, and should not bereported to OFAC in the ARBP, unless there is an interest in the account of a person whose property and interests in property are blocked pursuant to an applicable sanctions authority.
