The Americans with Disabilities Act: A Different Kind of Compliance Concern
Banks are familiar with regulation â regulations, model forms, exams, findings, remediations, etc. That process is what many expect when it comes to the various compliance requirements that apply to financial institutions. So itâs not surprising that bankers will often ask what the Americans with Disabilities Act (âADAâ) requires, whether something is ADA compliant, and what the ADA permits. Unlike most other expectations, ADA requirements are often unclear and may even differ across jurisdictions.
While many requirements that apply to banks have clear answers â you must disclose this, you may not charge that fee â the ADA is built differently. To begin with, while many laws are implemented by regulations (Reg Z implements the Truth in Lending Act, for example), the ADA has no implementing regulation or federal agency tasked with enforcement.
If an ADA failure isnât going to show up on an exam, why is compliance important? The primary means of ADA enforcement is not examinations or enforcement actions, but a âprivate cause of action,â meaning the statute allows disabled individuals to bring lawsuits directly against businesses that do not comply with the ADA. Unlike a regulatory exam finding, lawsuits are fairly expensive and are resolved only when the parties either agree to a settlement or a court makes a decision. This also means that there is no âexam manualâ or other definitive document that will tell a bank what the ADA does or does not require; furthermore, there not be any notice of a violation until it is costing the bank money in legal fees and potentially also payments to plaintiffs.
In some jurisdictions, courts also allow what is called âtester standing,â where someone can bring a suit alleging ADA violations even if they had no intention of patronizing the business they are suing. A tester need only allege that the business did not offer reasonable accommodations for the testerâs disability, not that they were planning to use the businessâs services and therefore harmed by the issue. Tester standing creates additional legal risk to businesses because it expands the potential pool of people who might sue.
Courts have also held that the ADA applies to websites in addition to physical locations. Many banks are familiar with the ADA website compliance standards that have developed as an industry standard for ADA website accessibility. There is not a regulation that requires banks to adhere to these standards, but lawsuits against companies whose websites donât meet these standards can be brought by disabled customers as well as testers.
Website accessibility, when combined with tester standing, makes for a very large pool of potential litigants. It takes a lot less time to visit a website than a businessâs physical location, so a potential litigant could test dozens of websites every day. Because the number of potential litigants for online access claims is so large, website accessibility is often identified as the highest priority when it comes to ADA compliance.
Similarly, because there is not a regulation or exam associated with the ADA, an ADA failure will not appear as a finding or remediation item; it will typically appear as a lawsuit unless the bank includes ADA items in its own internal audits or assessments. For this reason, ADA issues may most accurately be categorized as a type of legal, rather than regulatory, risk to the bank. Management of that risk may require guidance from an attorney familiar with the current ADA case law, since regulators do not provide guidance on ADA compliance and the standards for what is considered adequate accommodation of disabilities may also vary between jurisdictions.
As always, please reach out to us on the Compliance Hub Hotline with any other questions or concerns you may have.
Forecast: Governor Bowman Identifies Regulator Priorities
Federal Reserve Governor Michelle Bowman has been busy recently, visiting three different statesâ banker events and delivering a consistent message. With the rapid changes happening and many federal appointments still to be made, Governor Bowmanâs comments may help banks get a sense of what to expect in the near future. Here are some highlights from her remarks.
Tailoring regulation to banksâ size and complexity. Governor Bowman discussed how important it is, particularly to community banks, that requirements be tailored to the size and complexity of the banks they regulate, specifically calling out the new Community Reinvestment Act rules (currently subject to pending litigation) that would have applied the same expectations to banks with asset sizes of $2 billion to $2 trillion.
Effective supervision. Itâs clear that Governor Bowman wants to advance a vision of supervision in which regulators accurately identify the key issues worth prioritizing and those issues are addressed by well-trained and experienced examiners. In her comments, she discussed the importance of both effective prioritization of supervisory objectives and the informed, experienced judgment exercised by individual examiners.
Liquidity. While noting that some dynamics in Treasury market functioning may be outside the purview of bank regulators, Gov. Bowman does note that regulators are appropriately situated to analyze and remediate components of bank regulation that may contribute to Treasury market illiquidity.
Stress Testing. This is a topic that the Board has already identified as a priority for review; in December 2024, the Board indicated that it would soon solicit public comments on the process. Governor Bowman expressed a belief that the stress testing process could be made more transparent, fair, reliable, and credible.
Fraud. By every measure, the cost of fraud to banks has increased in recent years. These costs include not only direct losses due to fraud, but also the cost of tools designed to detect and prevent fraud and the costs associated with efforts to remediate fraud. There are additional, more nebulous costs, such as damage to public confidence in the banking system and the curtailment of services offered or used due to the fraud risk associated with certain services. Governor Bowmanâs comments mention these concerns and call for âmore assertive action to protect bank customers and the financial system.â
New Technology. While clearly stating that innovation originates in the private sector, Governor Bowman recognized that regulators have a role in fostering the development of new technologies to improve the banking system. She emphasized that clear, consistent, and transparent regulatory expectations provide the stability that allows businesses to make long-term investments in innovative technology. When regulatory expectations are unclear or inconsistent, on the other hand, the availability of banking services may be reduced, improvements may be stymied, and uncertainty about regulatory expectations can discourage innovation. Governor Bowman takes the view that regulators must fully understand the risk and benefits of digital assets and distributed ledger technology in order to facilitate reasonable and supportive regulatory approaches while also ensuring the health and safety of the banking system.
While uncertainty remains about many aspects of federal regulation during this transitional period, Governor Bowmanâs comments may provide some forecast about regulatory priorities in the near future. We at Compliance Alliance continue to watch for developments to keep our members updated as information becomes available. As always, please reach out to us on the Hotline with any questions or concerns you may have.
New Year, New Thresholds
In case you missed any of these updates, annual threshold adjustments have been made for HMDA, Reg Z, Reg M, and HOEPA as of the time of this publication.
Annual adjustments to these asset-size thresholds are based on the change in the average of the Consumer Price Index (CPI) for Urban Wage Earners and Clerical Workers, not seasonally adjusted, for each 12-month period ending in November, with rounding to the nearest million.
For 2024, the threshold was $56 million. During the 12-month period ending in November 2024, the average of the CPI-W increased by 2.9 percent. As a result, the exemption threshold is increased to $58 million. Thus, banks and savings associations with assets of $58 million or less as of Dec. 31, 2024 are exempt from collecting data in 2025. That being said, a bankâs exemption from collecting data in 2025 does not affect its responsibility to report data it was required to collect in 2024.
Reg Z and Reg M Thresholds for 2025
Dodd-Frank Act amended TILA and CLA by requiring annual adjustments to the thresholds based on the annual percentage increase in the consumer price index for urban wage earners and clerical workers. Only those transactions at or below the thresholds are subject to the protections of the regulations.
Based on the annual percentage increase, TILA and CLA will apply to consumer credit transactions and consumer leases of $71,900 or less in 2025.
Keep in mind, this particular exemption threshold is not applicable to some types of credit, as listed below:
- Loans secured by any real property, or by personal property used or expected to be used as the principal dwelling of the consumer; or private education loans.
- Private education loans and loans secured by real property (such as home mortgage loans) or the consumerâs principal dwelling remain subject to TILA regardless of the amount of the loan.
HOEPA and QM Threshold Adjustments
This section of the regulation contains a points and fees coverage test for use in calculating whether a transaction is a high-cost mortgage. Where applicable, the total points and fees thresholds are as follows:
- 5% of the total loan amount for loans greater than or equal to $26,968 (32(a)(1)(ii)(A)).
- 8% of the total loan amount or $1,348, whichever is less, for loans less than $26,968 (32(a)(1)(ii)(B)).
Ability to Repay/Qualified Mortgages (ATR/QM): This section of the regulation contains standards for determining whether a transaction is a QM. In part, a transaction is not a QM if the transactionâs total points and fees exceed certain thresholds, based on specific loan amounts (1026.43(e)(3)(i)). Where applicable, the thresholds are as follows:
- Points and fees may not exceed 3% for a loan amount greater than or equal to $134,841
- Points and fees may not exceed $4,045 – for loans greater than or equal to $80,905 but less than $134,841
- Points and fees may not exceed 5% for loans greater than or equal to $26,968 but less than $80,905
- Points and fees may not exceed $1,348 for loans greater than or equal to $16,855 but less than $26,968
- Points and fees may not exceed 8% – for loans less than $16,855.
As always, if you have questions about updates to thresholds or any other compliance concerns, please reach out to the Compliance Hub Hotline via chat, phone, or email.
Are the Algorithms Playing Fair? CFPB Looks at AI in Credit Scoring
In its January 17, 2025 special edition of Supervisory Highlights, the Consumer Financial Protection Bureau reiterated its concerns regarding fair lending risks related to new technologies. In this case, the focus is on complex automated underwriting systems, particularly those that use artificial intelligence (AI) or machine learning (ML).
The guidance highlights two major concerns. The first is whether lenders are testing their credit scoring models to determine if the models use prohibited factors, or proxies for prohibited factors, in their decisioning or if the scoring model is resulting in disparate impacts. The concern about prohibited factors is fairly clear; lending decisions should not be based on prohibited factors. That should, at least in theory, be something that AI/ML systems can be simply programmed not to do.
Disparate impact is a bit more complicated. As stated in regulatory guidance on fair lending, disparate impacts are not absolutely prohibited as prohibited factors are, but where a credit decisioning method results in disparate impacts, a lender should be able to demonstrate a business justification for the method and also that the lender is employing a model that minimizes disparate impacts while meeting legitimate business needs.
The guidance therefore indicates that lenders should be testing for fair lending concerns when using AI/ML models and, where disparate impacts are found, documenting the process for selecting the model chosen. This should include documenting the business needs the model serves, including specific standards that are used to evaluate whether the model meets those needs. In addition, the lender should be able to demonstrate that it has reviewed other models to determine whether the identified business needs can be met by another model with less discriminatory effects. Without documenting the model selection process in which models are compared based on their ability to further business needs and reduce disparate impacts, a bank may not be able to demonstrate that it has adhered to fair lending requirements.
The second concern discussed in the guidance is the use of âalternative data,â which may include hundreds of different variables, used in more complex credit scoring models. Variables that are not clearly related to consumersâ finances may invite scrutiny from a fair lending perspective, both in terms of whether the variable is truly related to creditworthiness and also whether it may be proxy for a prohibited factor. Lenders should therefore be able to demonstrate the relevance of variables that are entered into automated underwriting systems, as the agencies have discussed more specifically in other guidance.
Additionally, the guidance notes that the use of complex AI/ML credit scoring models with dozens or hundreds of variables does not alleviate a lenderâs responsibility to identify the specific reasons for adverse actions. Banks must therefore be able to demonstrate that the reasons stated on adverse action forms are, in fact, the primary reasons that an adverse action was taken. The guidance states that lenders should be able to demonstrate through testing that the methods used to identify the primary reasons are reliable and accurate.