Stop the Presses: CRA Delay
Weâre sure everyone reading this was eagerly awaiting April 1, when certain parts of the new CRA rule were due to go into effect. It has been a big topic of conversation, with false rumors of delays and misinterpretations. The rumors reached a point where we felt compelled to correct the public record, and we wrote an article mere weeks ago discussing how the rule was still on track for implementation in April despite the rumors. Of course, the powers that be changed their minds at the eleventh hour.
In short, the elements of the new CRA rule which were set to go into effect next week have now been delayed. Most notably, the agencies extended the applicability date of the public file and facility-based assessment area provisions from April 1, 2024, to January 1, 2026. This extension aligns these provisions with the other substantive parts of the rule.
Under the original version of the rule, banks would have needed to upload their CRA public files to their websites by April 1st, and banks deemed large would have had to include only whole counties in their assessment areasârather than including partial counties, as they had been doingâand update these assessment areas. Now, everyone has a little more breathing room, albeit right before the original deadline. In addition, the agencies also issued technical, non-substantive amendments to the CRA final rule and related agency regulations that reference it.
As you may be aware, the CRA Final Rule has been an area of conflict, even within the regulatory agencies who proposed it. Federal Reserve Governor Michelle Bowman, one of the most vocal regulators opposed to the CRA update, said that the fact that the agencies amended the proposal less than six months after issuing it âprovide[s] more evidence of the rushed and overzealous nature of the CRA rulemaking process.â This is a highly unusual move to be sure. Sometimes, a court may issue an injunction before an effective date, but it is uncommon for the regulators themselves to do this, and especially so close to an applicability date.
The regulators are taking public comments on the amendments to the CRA rule for 45 days after publication in the Federal Register, but the interim final rule delaying these applicability dates until 2026 is set to take effect April 1, 2024. As always, if you have any additional questions about this, please reach out to us on the Hotline.
New Deposit Insurance Rules Coming in April
When you think about this upcoming April 1st, youâre probably thinking about what great prank you will pull off. Or about getting that CRA public file uploaded to your website. In all the hubbub, you may have overlooked a new FDIC rule that is going into effect to change existing deposit insurance requirements. The rule amends the deposit insurance regulations for two types of accounts: trust accounts and mortgage servicing accounts. The intent is to make deposit insurance rules easier to understand, facilitate more timely determinations for trust accounts, and enhance coverage consistency for mortgage servicing deposits.
Trust Accounts
The revocable and irrevocable trust deposit insurance rules will be merged into one new âtrust accountsâ category with just one formula for calculating coverage for all revocable and irrevocable trust accounts. Under the rule, trust deposits will be insured up to $250,000 per beneficiary, up to five beneficiaries, so a maximum of $1,250,000 per owner per insured bank for any trust account.
This may sound familiar. The FDIC already utilizes this method to calculate coverage for revocable trusts with five or fewer beneficiaries. Small entities may also incur some initial costs to become familiar with the changes and explain them to potential trust customers, but this is counterbalanced by the fact that the rules should be easier to understand and explain.
Mortgage Servicing Accounts
For mortgage servicing accounts (MSA), the current rules provide coverage based on each borrowerâs principal and interest payments into an account, up to $250,000 per borrower. However, there are instances where a mortgage servicer advances its funds to lenders on behalf of a borrower, and under the current rules, these do not receive the same coverage. Instead, principal and interest funds advanced by a servicer to cover delinquencies and foreclosure proceeds collected by servicers are insured to the servicer as corporate funds.
Under the new rule, principal and interest advances from servicers on behalf of borrowers would be insured up to $250,000 per borrower to make coverage in these situations more consistent. The composition of an MSA attributable to mortgage servicersâ advances on behalf of delinquent borrowers and collections would be insured per mortgagor, consistent with the coverage for payments of principal and interest collected directly from borrowers. Therefore, the rule expands coverage when an account maintained by a mortgage servicer contains principal and interest funds advanced by the servicer to satisfy the obligations of delinquent borrowers to the lender or foreclosure proceeds collected by the servicers. Generally, the amendments would provide consistent deposit insurance treatment for all MSA deposit balances held to satisfy principal and interest obligations to a lender, regardless of whether those funds are paid into the account by borrowers or paid into the account by another party to satisfy an obligation to remit principal and interest due to the lender.
Pig Butchering
âPig butcheringâ is not what you think. Iâm not referring to life on a farm. This is the terminology used to refer to one of the most popular scams currently plaguing the market. Itâs costing victims millions of dollars a year. This is a cryptocurrency investment scam sweeping the nation.
As vulgar as the name is, it makes sense once you understand how it works. Scammers try to âfatten victims upâ and then take them for everything they have. Typically, these are cryptocurrency schemes, but they could involve any type of financial trading. The typical script is that a scammer will cold-contact people via texting or social media messaging, pretending that theyâre attempting to contact someone else. Once the recipient responds by saying they have the wrong number, the scammer attempts to strike up a conversation and try to build a rapport with the victim. After establishing one, sometimes over long periods, the scammer will suggest that theyâve been making a lot of money in cryptocurrency investing and tell the victim they can do the same. Itâs an opportunity too good to pass up, they allege.
Next, the scammer will suggest a trustworthy app or website to do the trading. These platforms will appear trustworthy and may even impersonate the platforms of legitimate financial institutions or trading platforms. These apps may even have a ton of downloads and positive reviews in the application store, which were all really farmed out to create a false impression. Once the victim downloads the app, they will be directed to make their investment. You may think this ends once the victim has sent the money, but youâd be wrong. The victims can watch âreal-time market dataâ meant to show their investment potential. Theyâll see their investment growing over time, which the scammers hope will encourage additional investments. Over the course of months, many think theyâve reached new levels of wealth and slowly invest more and more until theyâve invested everything they have. Once the victim is unable or unwilling to invest any more into the scam, the scammer will cease communication with them, shut down the account, and disappear. Absconding, of course, with all of the victimâs investment.
The U.S. Department of the Treasuryâs Financial Crimes Enforcement Network (FinCEN) issued an alert last year to bring attention to this scam. In addition to providing general tips and resources and SAR filing instructions, it includes a list of red flag indicators banks may find helpful in detecting, preventing, and reporting potential pig butchering activity. The following are some of the notable red flags:
- Customers with no history of using cryptocurrency suddenly exchanging a high volume of fiat currency for cryptocurrency.
- Customers expressing a sudden interest in an investment opportunity promising significant returns from a stranger who reached out to them unsolicited.
- Customers who say they were instructed to exchange fiat currency for cryptocurrency and deposit it at an address supplied by the instructor.
- Inactive or low-activity accounts that begin to show sudden and frequent withdrawals of large amounts being exchanged for cryptocurrency.
In addition to filing a SAR, financial institutions are encouraged to refer pig butchering victims to the FBIâs IC3 and can also refer customers to the Securities and Exchange Commissionâs tips, complaints, and referrals system to report fraud.
Financial institutions may refer their customers to DOJâs National Elder Fraud Hotline at 833-FRAUD-11 or 833-372-8311 for elder victims of pig butchering.
Rumor Has It
Rumors spread like wildfire. If you need proof, ask any compliance professional about the new CRA ruleâs public file posting requirements and when it goes into effect. If you asked three people, you might get three different answers. We want to make sure our members know better, so weâve decided to set the record straight.
Unless youâve been living under a rock, youâve heard of the new CRA final rule. It includes a provision regarding the location of a bankâs public file. The rule addresses both banks that do have a website and banks that do not have a website. If a bank has a website, it must maintain its public file on its website. This applies to banks of all sizes. See:
â(c) Location of public information. A bank must make available to the public for inspection, upon request and at no cost, the information required in this section as follows:
- For banks that maintain a website, all information required for the bank’s public file under this section must be maintained on the bank’s website.â
The final rule will be effective on April 1, 2024. Many of the ruleâs provisions will not become applicable until January 1, 2026, but the requirement to post the public file to the bank’s website is not one of the delayed provisions. It will be applicable come April 1, 2024. This is not an early April Foolâs Day joke. It has not been delayed.
There is a belief that the public file website requirement has been indefinitely delayed. This stems, in part, from an amendment to the final rule indefinitely delaying one section. That section is related to the implementation of the small business lending rule (also referred to as â1071â). This amendment was to add a paragraph that would have required a statement in the public CRA file on the availability of small business lending data on the CFPB’s website. There are some locations in the final rule that mention or cite 1071, and while these 1071 issues are being litigated, these references are on hold. This does not delay the implementation of the public file posting requirement.
There is also some confusion relating to the rule appendices. The new version of the public notice is in Appendix F, which contains some minor changes from the current version. Technically, the public notice requirements are effective on April 1, 2024, but Appendix F is not. These are separate parts of the final rule. The agencies did publish an Interagency Webinar a few weeks ago that seemed to say that banks can either post the new version from Appendix F or continue using the old version (in Appendix G) until January 1, 2026. But on April 1 of this year, the website posting requirement goes into effect.
Some people are even saying things like the agencies are posting inconsistent versions of the rule. Trust us, we even checked; it’s all there. We hate to be the bearer of bad news, but come April, if your bank has a website, you need your public file posted. We also discussed this with member in our February 2024 Huddle if youâre interested in taking a listen here.