The FDIC recently released their March 2023 Supervisory Highlights, which begins with a discussion of the most frequently cited violations. According to the FDIC, because of the methodology used in examinations, the most frequently cited violations normally represent the greatest for consumer harm. The top regulatory areas cited included:
1) Regulation Z: problems with disclosing closing cost information on the Closing Disclosure.
2) UDAP: charging multiple NSF fees for the re-presentment of the same transaction without disclosures that clearly explain the institution’s policy for fees and re-presentments.
3) Flood Insurance: problems having sufficient flood insurance in place at the time of a MIRE event (when a loan is made, increased, renewed, or extended).
4) Regulation E: problems with investigating consumer reported errors and reporting the results to consumers within the required timeframe.
5) Regulation DD: problems with the timing and content requirements of deposit account disclosures.
More or less, the FDIC’s findings matches what we at Compliance Alliance hear and see from our members in asking questions of our hotline staff. The aforementioned areas continue to be the source of questions ranging from the simple and straightforward to the complex and convoluted.
In addition to the most frequently cited violations, the Supervisory Highlights also noted some of the more significant compliance issues identified by examiners in 2022, which included:
1) RESPA section 8 violations where a bank contracted with third parties that identified and contacted consumers in order to steer and influence the consumer’s selection of the bank as their lender. The March 2021 Supervisory Highlights discussed the difference between a lead (allowed) and a referral (not allowed), and how the facts and circumstances surrounding the activity could cause leads to be considered referrals, particularly if the payment for the lead is for activity that affirmatively influences the section of a particular lender.
2) FCRA issues involving financial institutions that purchased information from consumer reporting agencies about consumers’ credit activity (such as identifying those consumers who recently applied for a mortgage loan), but failed to provide consumers with firm offers of credit, either verbally or in writing, when contacting the consumer. The FDIC noted that this contact by the bank to the identified consumer should have included that a) an offer of credit was being made, b) the offer was guaranteed if the consumer continued to meet the credit criteria, c) the offer was a prescreened offer based on the consumer’s credit report, and d) the consumer could opt out of future prescreened offers.
3) SCRA problems when applying interest in excess of the 6% maximum to the principal loan balance, without the servicemember’s authorization. Among the protections provided by the Servicemembers Civil Relief Act is upon notice and a copy of military orders, the interest reduction of any pre-service loans to 6% for the period of active-duty service (and for an additional year after the end of active duty for mortgages). The SCRA also prohibits accelerating principal, which would include applying any excess interest to the loan balance without giving the servicemember a choice as to how they’d like to receive the funds (apply to loan balance, cash refund, apply to current or future payments, etc.). To comply with the requirement of the SCRA, banks should offer the servicemember options as to how they’d like to receive the funds resulting from a reduction in the interest rate and follow the servicemember’s request.
4) Fair Lending concerns of such significance that the matters were referred to the Department of Justice. Problematic areas included: a) redlining due to a lack of branching activity and marketing in certain areas, b) pricing for indirect automobile financing which incentivized dealer discretion and ultimately led to different pricing on a prohibited basis, and c) policies related to the pricing or underwriting of credit that used screening methods that included prohibited bases in the credit decision process.
We at Compliance Alliance work hard all day, every day to try and help our members avoid costly and time-consuming violations. From our training and tools to our publications and answering specific questions on our hotline. Never hesitate to reach out to us for help with a problem you’re facing. All the aforementioned problems could have been prevented by seeking help, which is exactly what we do. If you’ve got a problem, chances are we’ve written about it, trained on it, have a tool for it, but even if not, we can answer the question on the hotline. You’re not alone in the compliance battle: we’re here to help!