May 2021 Newsletters

You Say There’s a Trigger Term

In this day and age where banks are looking for every slight advantage to outduel the competition, it’s important to consider the potential risks that may occur. In the world of bank advertising, this could mean compliance risk associated with being unfair, deceptive or misleading and/or technical violations of laws and regulations, which could come with a pretty steep price tag.    

With mortgage rates at an all-time low, many banks are taking advantage of this rate environment and advertising their suite of affordable mortgage loan products. So, there’s no better time than the present to remind ourselves of the general closed-end loan advertising requirements under Regulation Z (v). 

As we may already know, Regulation Z has a gamut of advertising requirements for both open and closed-end advertising (the latter is our focus here). First and foremost, is to only advertise loan terms that are actually available to consumers. What does this mean? Well, if the banks advertising a really low annual percentage rate (“APR”), such as 1.99% APR, then that rate should be available to borrowers. That one’s pretty straight forward. 

Next, whenever adverting a rate it must be stated in terms of the annual percentage rate, which does allow a bank to use the abbreviation APR without actually having to state the full term in totality (unlike what is required on the deposit side of the house regarding advertisements containing rates of return.)

As we move through the regulation, we get into trigger terms, which are the meat and potatoes of advertising compliance. And, interesting enough, the actual advertisement of the APR (as mentioned above) is not considered a trigger term for closed-end loans. So, then what is a trigger term?

Thankfully, Regulation Z (1026.24(d)(1)) does a good job of defining what is actually meant by a closed-end loan triggering terms, including: the amount or percentage of any downpayment, the number of payments or period of repayment, the amount of any payment, and the amount of any finance charge. 

OCC, FRB, FDIC and Proposed Case-by-Case SAR Exemptions

The filing of Suspicious Activity Reports (SARs) is required by the Bank Secrecy Act. To ensure the proper and timely filing of reports, SAR regulations have been published by Financial Crimes Enforcement Network (FinCEN), the Office of the Comptroller of the Currency (OCC), the Federal Reserve Board (FRB), and the Federal Deposit Insurance Corporation (FDIC). Although these regulations are similar, the ones published by the regulators (OCC, FRB and FDIC) are slightly broader in scope.

Under the regulations there are both required SARs and discretionary SARs. Required SARs include a) insider abuse involving any amount, b) transactions aggregating $5,000 or more where a suspect can be identified, c) transactions aggregating $5,000 or more that involve potential money laundering of violations of the Bank Secrecy Act, and d) transactions aggregating $25,000 or more regardless of potential suspects. Discretionary SARs are those which a financial institution may voluntarily choose to file when circumstances indicate suspicious activity, but the regulations do not require the filing of a SAR.

Regardless of who an institution’s federal regulator is, every institution is subject to both their regulator’s SAR regulations, as well as FinCEN’s SAR regulations. As previously mentioned, all four versions of the SAR regulations are similar and contain the same filing exemptions for robberies and burglaries, as long as the crimes are reported to law enforcement. There are also exemptions for lost, missing, counterfeit or stolen securities, provided that the financial institution files a report with the Securities and Exchange Commission. Where the regulations differ, with respect to SAR exemptions, is that the FinCEN regulations give the Treasury Department the authority to grant exemptions to the SAR regulations, and the OCC, FRB, and FDIC regulations do not grant this authority to the federal regulators.  Nonetheless, since financial institutions are subject to both FinCEN and their regulator’s versions of the SAR regulations, the exemption from FinCEN would only apply to FinCEN SAR filing requirements and not the regulator’s SAR filing requirements.

However, due to the publication of Notices of Proposed Rulemaking (NPRM) by the OCC, FRB, and FDIC, the regulators have proposed to add the power of case-by-case exemption from SAR filings to each regulator’s SAR regulations. Although the regulators have proposed to procedurally handle SAR filing exemptions differently, the basic process will be to request an exemption from SAR filing from the institution’s regulator after which the regulator will confer with FinCEN to see if each agency is interested in dually granting an exemption from SAR filings in that specific instance.

Included in the NPRMs are communication and documentation requirements that require the regulators to respond timely to the institution making the request and after conferring with FinCEN to provide a response granting or denying the request. Exemptions may be granted for an indefinite or fixed period and may be extended or revoked by the regulators. In the case of a revocation, the institution will have an opportunity to challenge the revocation and the ultimate decision by the regulator must be communicated in writing to the requesting financial institution.

New TRID FAQs Address Partial Exemptions for Housing Assistance Loan Creditors

President Biden signed the Building Up Independent Lives and Dreams Act (BUILD Act) into law on January 13, 2021. The BUILD Act addresses housing assistance loan creditors – non-profit, tax-exempt organizations that offer no-interest residential mortgage loans with only bona fide and reasonable fees, primarily for charitable purposes. This new law added a partial exemption to the Truth in Lending Act (TILA)/Real Estate Settlement Procedures Act (RESPA) Integrated Disclosure (TRID) Loan Estimate (LE) and Closing Disclosure (CD) requirements for qualifying transactions. On May 14, the CFPB updated its TRID rule FAQs to address the new partial exemption. The CFPB’s added a section to the FAQs called “Housing Assistance Loans.” The new section consists of five questions that (1) summarize the general rule of TRID applicability; (2) the existing partial exemption for certain mortgage loans; (3) the new partial exemption created under the BUILD Act; (4) what disclosures a housing assistance loan creditor must provide if the creditor claims the new BUILD Act partial exemption; and (5) whether a housing assistance loan creditor can still choose to provide the LE and CD to a partially exempt transaction. 

Question 1 reinforces the general rule that TRID applies to closed-end loans secured by real property or a co-op unit. The CFPB’s answer gives a brief history of the consolidation of the disclosure requirements under TRID. The FAQ answer also discusses the general requirement to provide the LE and CD. Question 1 clarifies that a housing assistance loan creditor would be subject to TRID if one of the partial exemptions does not apply. 

Question 2 discusses the existing partial exemption from the TRID Rule LE and CD requirements for no-interest, subordinate housing assistance loans that met certain conditions. You can find the complete list of these requirements at

Question 3 discusses the BUILD Act’s new partial statutory exemption from the LE and CD requirements for similar transactions. A transaction must meet all of the following criteria to qualify for the BUILD Act partial exemption:

  • The loan must be a residential mortgage loan.
  • The loan must be offered at a 0 percent interest rate.
  • The loan must only have bona fide and reasonable fees.
  • The loan must be primarily for charitable purposes and made by an organization described in Internal Revenue Code section 501(c)(3) and exempt from taxation under section 501(a) of that Code.

Question 4 advises that a creditor electing not to provide the LE and CD for a transaction that satisfies the BUILD Act partial exemption must provide the applicant with a Good Faith Estimate and HUD-1 Settlement Statement under RESPA and a traditional disclosure statement under TILA. Creditors relying on the BUILD Act partial exemption also must provide applicants with the Special Information Booklet under RESPA. This is different than the existing partial exemption in § 1026.3(h), which does not require the GFE, HUD-1, or Special Information Booklet.

Question 5 advises that a creditor may elect to disregard the partial exemption and choose to provide the LE and CD.

In updating the TRID rule FAQs, the CFPB seeks to further direct the application of TRID to housing assistance loans covered by the BUILD Act and gives guidance to the disclosures required, both those covered by partial exemptions, and those not. Although potentially a niche part of the residential loan sector, no-interest residential mortgage loans with only bona fide and reasonable fees, primarily for charitable purposes and their disclosures are still governed by TRID and RESPA, and as Question 5 states, disclosing an LE and CD on these loan types then shields the lender from the various exemption requirements. If you have questions or would like to discuss this topic in greater detail, reach out to our hotline staff.

Training for Changes

Have you ever found yourself sitting in a training session wondering, “what is the point of this?” Certainly, you’re not alone.  Some training certainly seems more valuable than others, and the subject of the training is as important as whenyou’re training. For most of us, I’d imagine that training is something that mostly happens when you’re first hired, and something that happens again annually on certain topics. For instance, everyone must receive annual training related to the Bank Secrecy Act (BSA). However, some of the most important training will be ones that don’t happen at either of those times but happen as needed when regulatory changes arise, because training isn’t really about satisfying requirements, it’s about knowing the right things to do the job well.

Bank regulators notoriously publish new rules and issue guidance without warning, with some having immediate effect and some not having effect until a while later.  In either event, these regulatory changes may fall in between annual trainings, causing the need for mid-year training. Specifically, how this training is done is up to the bank, and training should never be seen as a one-size-fits-all process. Each institution is going to have its own criteria, its own goals and even its own budget when it comes to providing training to its employees, so Bank A’s training isn’t necessarily appropriate for Bank B, and Bank B’s training doesn’t always meet the goals of Bank C.

Compliance Alliance maintains a Regulatory Compliance Calendar to help with keeping up with active comment periods and the effective dates of rules. Additionally, this calendar contains our updated schedule for huddles, back-to-basics webinars, regular monthly webinars, and any other training-type resources that are scheduled in advance. Coming up in June we have a back-to-basics webinar on Reg. E Error Resolution and Liability (register here), a monthly webinar on Annual BSA/AML Training (register here), and our monthly Compliance Huddle (register here). Further, the calendar notifies that comment period will close on June 11 for a notice and request for information and comment related to the extent to which Model Risk Management principles support BSA/AML and OFAC requirements (link).

With the General QM rule’s mandatory compliance being delayed from July 1, 2021 to October 1, 2022 (although creditors will still have the option of complying with either the original, DTI-based General QM loan definition or the revised, price-based General QM loan definition until October 1, 2022), the next regulatory effective date on our Regulatory Compliance Calendar is the Final Rule on Net Stable Funding Ratio (link) which is effective as of June 11, 2021.

We consider our Regulatory Compliance Calendar to be a “must-check” when it comes to planning upcoming trainings and generally staying ahead of the regulatory changes. The calendar works in conjunction with our daily e-mail updates which provide updates about new and improved tools which are used in providing or developing trainings for your staff. Keeping up with our calendar and subscribing to our daily e-mails provide the preparation for changes and enable you to provide relevant and accurate training when the time is right.