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Don’t get stumped by regulatory compliance questions

Oct 30, 2022

Regulatory compliance issues are complex and ever changing. Even seasoned compliance officers at financial institutions can feel overwhelmed at times by regulatory details, making them eager for confirmation by a credible outside source that their decisions or advice given are correct.

The range of topics that can come under regulatory scrutiny are vast and raise a myriad of questions. Here are just a few:

  • How confident are you that the language in your radio or print advertising meets the technical requirements of consumer federal regulations?
  • Do you have any concerns about whether your lending practices fully comply with the fair lending requirements or other regulations?
  • What do you tell mortgage borrowers who question the need for flood insurance on a property already in disrepair?
  • How do you handle situations that aren’t clearly defined in the regulations?

Financial institutions working with Wipfli have an invaluable service available that provides prompt and specific answers to a wide variety of regulatory compliance questions that arise in their business.

Among the key compliance areas that can cause confusion are lending and deposit practices, the Bank Secrecy Act, unfair and deceptive acts or practices, and advertising policies. Here are a few real-world case studies that reveal top concerns among financial institutions with accompanying responses.

Nonsufficient funds disclosure

A financial institution’s deposit fees schedule states the nonsufficient funds (NSF) fee is $36 per item. The financial institution has heard this may be considered an unfair practice and would like to know if the disclosure should be amended.

Recent litigation has focused on the unclear disclosure of NSF fees and, specifically, the fact that an NSF fee is charged multiple times on a single item when an item is returned and a merchant represents the item for payment multiple times.

In some circumstances, the terms and conditions document for deposit accounts has been amended in recent years to disclose that this could occur; however, the fee schedules have not been amended and often still state, “per item” or are otherwise unclear that multiple fees may be charged on a single item. The FDIC published supervisory guidance on August 18, 2022, in an attempt to require FDIC-regulated institutions to rectify this issue and avoid litigation.

This guidance follows several class-action lawsuits related to this practice. Per the FDIC supervisory guidance, the following should be included in disclosures and sent to all existing and new customers:

  • Information on whether multiple fees may be assessed in connection with a single transaction when a merchant submits the same transaction multiple times for payment
  • The frequency with which such fees can be assessed
  • The maximum number of fees that can be assessed in connection with a single transaction

The FDIC guidance also encouraged a review of customer notification or alert practices related to NSF transactions and the timing of fees to ensure customers are provided with an ability to effectively avoid multiple fees for re-presented items, including restoring their account balance to a sufficient amount before subsequent NSF fees are assessed.

Finally, the FDIC guidance stated that restitution should be made for any consumer harm, consistent with Section 5 of the Federal Trade Commission Act, and that “if examiners identify violations of law due to re-presentment NSF fee practices that have not been self-identified and fully corrected prior to a consumer compliance examination, the FDIC will evaluate appropriate supervisory or enforcement actions, including civil money penalties and restitution, where appropriate.” 

Whether FDIC-regulated or regulated by another federal agency, the guidance provides a road map to correction of this issue and should be considered. Coordination with the lead federal examiner should take place prior to any restitution.

Implementing a new loan mortgage loan product

Senior management is considering implementing a mortgage loan product specific for healthcare professionals that will allow for higher debt-to-income and loan-to-value ratios and no employment history as long as they have a commitment for a current position. In addition, rates and fees will be lower than other mortgage loan products offered. The product would be based on specific criteria that must be met for those in that profession. The financial institution wants to know of any compliance concerns they should consider.

Fair lending should always be top of mind when considering a new loan program, and the loan policy for this product should be written to ensure every applicant will be treated equally. You may want to consider which types of healthcare professionals can take advantage of this loan product. If there are any limitations on the type of healthcare professional that could apply, consider if that restriction may result in disparate impact or treatment.

Any restrictions should be supported by a strong business case for why certain healthcare workers are not covered under the program. Also, consider whether, based on the types of applicants that will be eligible for this offering, there would be any risk that certain prohibited basis groups would not be represented in this product offering. If so, management should ensure a strong business case for the criteria used to underwrite and price the product can be made and that no other criteria exists that would meet the business needs of the financial institution but would still serve all prohibited basis groups.  

In addition, you will still need to follow all consumer regulations pertaining to these loans (such as Regulations B, C, V, X, Z, Homeowners’ Protection Act and the Flood Disaster Protection Act).

Reporting multiple cash deposits in separate accounts under the Bank Secrecy Act

A financial institution’s system generated a currency transaction report (CTR) on a joint account for a deposited cash transaction of $15,000 (due to the customer selling their boat). The joint owner on whose behalf the transaction was conducted had a deposit to their personal account later that same day that included $540 in cash. Does the $540 deposit get included in the CTR?

The $540 should be included on the CTR since the aggregate amount deposited exceeded $10,000. A CTR would be completed as follow:

  • One Part I for Customer A with the role as 2a (Person conducting transaction on own behalf) $15,000
  • One Part I for Customer B with the role as 2a (Person conducting transaction on own behalf) $540
  • One Part I for Customer B with the role as 2c (Person on whose behalf transaction was conducted) $15,000
  • Total amount for CTR = $15,540 cash in

Advertising a bonus offer to potential new customers

A financial institution wants to send potential new customers an offer for a $50 gift card in exchange for opening a new account with $200 or more. The institution is not sure if this is allowed and how to proceed in advertising this promotion.

Providing the gift card is allowed and would be considered a bonus under Regulation DD. Any advertisements would need to follow the bonus requirements as outlined in Regulation DD (1030.8(d)). The annual percentage yield, time requirement to obtain the bonus, minimum balance to obtain the bonus, minimum balance required to open the account (if greater than the balance required to obtain the bonus) and when the bonus will be provided need to be clearly disclosed to the consumer. This bonus information will also be provided to the consumer on the Truth-in-Savings disclosure.

How Wipfli can help

It would be difficult for an online help desk or chatbot to provide thorough answers swiftly to meet all consumer inquires and your institution’s practices. Sometimes, there is no substitute for an actual human, with trustworthy expertise, to address your concerns on complicated, and sometimes obscure, questions that come up in the everyday work of serving your customers and members.

Wipfli’s experienced ComplianceHelp team is equipped to field questions from brand new compliance officers and seasoned presidents of financial institutions alike. The subscription service provides answers within one business day, whether it’s confirmation of a decision about a new product rollout or insights to help you fill out a new disclosure form properly.

Learn more about how ComplianceHelp can help your financial institution achieve piece of mind in doing the ongoing, time-consuming work of meeting regulatory compliance requirements. It’s a risk mitigation tool that is as cost-effective as it is confidence-building.

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Author(s)

Amanda L. Knudsen
Manager
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