September 2023 Newsletters

CFPB’s Expanded UDAAP Authority Ruled “Unfair”

To the chagrin of the Consumer Financial Protection Bureau (CFPB), the Texas Bankers Association (TBA) and several co-plaintiffs succeeded in their motion for summary judgment against the CFPB in a case that challenged the legality of changes made by the CFPB last year to its Unfair, Deceptive, or Abusive Acts or Practices (UDAAPs) examination procedures which had adopted a sweeping anti-discrimination policy. The U.S. District Court for the Eastern District of Texas’ (the “Court’s”) final judgment declared that “the pursuit of any examination, supervision, or enforcement action against any member of a plaintiff organization based on the (CFPB’s) interpretation of its UDAAP authority” is “unlawful as exceeding statutory authority.”

The CFPB adopted this policy in March 2022, via an update to its exam procedures, stating that discrimination in any financial product is an “unfair” practice that can trigger liability under the federal prohibition against UDAAPs. This was generally seen as an expansive view of its statutory authority. Essentially, the CFPB was using its authority to combat unfair, deceptive, or abusive acts or practices to target discriminatory conduct even where traditional fair lending laws may not apply, such as in the context of deposits. It was taking the position that discrimination, whether intentional or unintentional, may meet the criteria for “unfairness” by causing substantial harm to consumers that they cannot reasonably avoid. This was seen as a major expansion of the CFPB’s UDAAP authority and many institutions were proactively reviewing all their consumer products and services broadly under “unfairness” and anti-discrimination principles.

As expected, many industry groups, including TBA, promptly challenged this action which has now culminated with the vacating of the CFPB’s exam manual update and the injunction of the CFPB from enforcing the exam procedures with respect to members of the plaintiff trade organizations that challenged the policy. The Court ruled that the CFPB had exceeded its statutory authority under the Dodd-Frank Act, finding, in part, that Congress had not conferred upon the CFPB such sweeping authority to regulate the financial-services industry for discrimination and, as such, any attempt by the CFPB to expand its mandate was unlawful.

How does this proceed from here? The CFPB has since indicated that it is considering its options for appeal so this fight might not be over. Any appeal would go to the United States Court of Appeals for the Fifth Circuit which in recent years issued other rulings against the CFPB and, while that is no guarantee the Plaintiffs would win again on appeal, it may be indicative of a favorable environment.

Nevertheless, despite a separate pending challenge to the CFPB’s constitutionality, the Bureau is continuing to issue rules and proceed with enforcement actions in other areas. Therefore, it would be prudent for banks to carefully consider their examination management approach. For those banks who are not members of any of the plaintiff trade organizations, it is technically still possible that the CFPB could still take supervisory or enforcement action.

The Court’s opinion that vacated the exam procedures update can be found here.

It’s Not Easy Being Small: One Concept, Many Regulations

Wouldn’t it be wonderful if there were just one standard by which banks could qualify as “small” and therefore be exempt from, or be subject to less exacting standards under, certain regulations? As compliance professionals, we truly appreciate the powers that be providing regulatory relief to those banks that are most affected by compliance costs, but it would just be nice if we could line up all of the definitions of “small.” The Community Reinvestment Act (CRA), Real Estate Settlement Procedures Act (RESPA), Truth in Lending (TILA), Home Mortgage Disclosure Act (HMDA), and Flood regulations all have different definitions and relief provided to small institutions.

For the CRA, the “small bank” standard is adjusted annually, based on the current average in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Currently, that threshold sits at assets of less than $1.503 billion. Within that subset of “small bank,” the “intermediate small bank” category, which requires an additional community development test for CRA performance standards, is any institution with assets between $376 million and $1.503 billion.

RESPA and the billing statement requirement in TILA both have identical requirements for smaller institutions. To be exempt from most of the RESPA servicing provisions and the TILA periodic statement requirements as a “small servicer,” an institution must be currently servicing 5,000 or fewer mortgage loans as either the main servicer, an affiliate of the main servicer, or an assignee of the loans. This exemption does not get you out of ALL of the RESPA servicing provisions—for example, you still must wait 120 days from delinquency in order to bring a foreclosure action. Nevertheless, being a small servicer does relieve you of many of the loss mitigation and billing requirements.

For the Higher-Priced Mortgage Loan (HPML), Ability to Repay/Qualified Mortgage (ATR/QM) and Home Ownership and Equity Protection Act (HOEPA) provisions of TILA, which apply to “small creditors” rather than “small servicers,” the standard is different.  It’s less than $2.537 billion in assets, and no more than 2,000 closed-end, consumer-purpose and dwelling-secured transactions originated in the last year, excluding loans held in portfolio. Keep in mind that HPML, HOEPA and QM Balloon loan exemptions carry the additional requirement of “rural or underserved”, the creditor must make at least one loan in a “rural” or “underserved” area as defined by the regulation within the last two calendar years to be exempt under those provisions.

There is a Small Lender exemption to the requirement to escrow flood insurance, also. If a financial institution has assets under $1 billion and it did not have a policy of requiring escrow of taxes or insurance for mortgage loans during a certain time period, the requirement to escrow flood insurance does not apply.

HMDA provides a helpful exemption for some of the fields that are required to be reported. Granted the word “small” is not used in the name of the exemption but the premise holds true. If a bank passes the requirements to report (which has its own size threshold of $54 million and a volume threshold of 25 closed-end and 200 open-end loans/lines) but does not exceed 500 loans or lines (separately) a large chunk of the data points are not required to be reported.

Finally, regarding examinations, the FAST Act in 2016 changed the threshold for an 18-month safety and soundness exam cycle. Currently, with assets less than $3 billion a financial institution will only be subjected to a safety and soundness exam from your federal regulator once every 18 months.

Whew! The federal agencies have stated numerous times that they both recognize the added regulatory burden on small institutions and wish to alleviate it, but based on a tangled web like this, it sure doesn’t seem like it. Hopefully there will be an attempt in Congress to streamline all of these exemptions into one single, easy-to-reference rule or regulation soon—until then, the best course of action is simply to keep track of all these separate requirements, stay alert for any changes or threshold updates, and contact Compliance Alliance if you have any concerns.

Appraisals and Evaluations: Renewals, Extensions, and Modifications

Can the bank rely on an existing appraisal for renewals, extensions, or modifications if no new money is being added? This is a somewhat commonly asked question since lenders and borrowers are always looking to minimize costs, and even more so in our current environment.  In general, the answer is “yes” – but like many things dealing with regulations, there is a caveat.

There is a two-part test to consider – whether the current appraisal/evaluation is valid, and whether the subsequent transaction requires a new evaluation. Let’s tackle the second part first.

The interagency guidelines provide that an appraisal is not required if the transaction involves an existing extension of credit at the lending institution, provided that a) there has been no obvious and material change in market conditions or physical aspects of the property that threatens the adequacy of the collateral protection after the transaction, even with the advancement of new monies, or b) there is no advancement of new monies, other than funds necessary to cover reasonable closing costs.

However, even though a new appraisal may not be required under the above, you will still need to have an evaluation done under this exception. Specifically, the regulation provides that for a transaction that does not require an appraisal, the institution must obtain an appropriate evaluation of real property collateral that is consistent with safe and sound banking practices.

So, even if you are exempt from obtaining an appraisal, your institution is still required to obtain an evaluation. Which brings us to the next question: is your existing appraisal/evaluation “valid”, and can it be used for the subsequent transaction?

The interagency guidelines provide that institutions are allowed to use an existing appraisal or evaluation to support a subsequent transaction in certain circumstances. Therefore, an institution should establish criteria for assessing whether an existing appraisal or evaluation continues to reflect the market value of the property (that is, that it remains “valid”). Such criteria will vary depending upon the condition of the property and the marketplace, and the nature of the transaction. The documentation in the credit file should provide the facts and analysis to support the institution’s conclusion that the existing appraisal or evaluation may be used in the subsequent transaction.

A new appraisal or evaluation is necessary if the originally reported market value has changed due to factors such as the passage of time, volatility of the local market, changes in terms and availability of financing, natural disasters, limited or over supply of competing properties, improvements to the subject property or competing properties, lack of maintenance of the subject or competing properties, changes in underlying economic and market assumptions (such as cap rates and lease terms), changes in zoning, building materials or technology, or environmental contamination.

So, while the bank may not be required to obtain a new evaluation if you have an existing appraisal, you still need to do an analysis that includes the factors listed above. This is particularly important for transactions that don’t involve any new money. While the transaction is clearly exempt from the appraisal requirement, you would only be able to circumvent the new evaluation requirement if you considered, analyzed, and verified the factors showing the old appraisal is still valid.

Again, much of this is going to depend on the specific facts and circumstances of your situation, so if you have questions feel free to reach out to us on the Hotline and allow us to help you determine what the right solution is for your scenario.

Updated EHL Poster

Under 12 CFR § 338.4(b), every institution supervised by the Federal Deposit Insurance Corporation (FDIC) that makes loans for the purpose of purchasing, constructing, improving, repairing, or maintaining a dwelling or any loan secured by a dwelling must display the Equal Housing Lender (EHL) poster.

The FDIC just recently issued FIL-47-2023 to clarify the requirements for Equal Housing Lender posters after a series of changes. These were originally prompted by a name change of the FDIC’s complaint-receiving entity, from the Consumer Response Center to the National Center for Consumer and Depositor Assistance as well as introducing the requirement to include the web address of the FDIC’s web-based complaint portal. The effective date for these changes was June 23, 2023, and according to the FIL, institutions are expected to make good-faith efforts to update the EHL posters as soon as reasonably practicable.

There has been confusion around exactly what was supposed to be on the EHL poster, as the rules have changed a few times in the past few years. First, in February 2021, the FDIC amended the regulations to make the EHL poster requirement applicable to State savings associations, and revised the regulation by removing the mailing address for the Consumer Response Center and replacing it with instructions to insert an address stated on the FDIC’s website at

In August 2022, the FDIC updated the regulation again through a technical correction to replace the reference to Consumer Response Center with its new name, the National Center for Consumer and Depositor Assistance, and to add the web address for the National Center for Consumer and Depositor Assistance complaint portal. However, when updating the regulation, the instruction to include the mailing address was inadvertently removed.  Further amendments were required to make a couple of technical changes, including reinserting the instructions to include the mailing address for the National Center for Consumer and Depositor Assistance.

One important thing to note is that, at least at the time of this publication, the updated regulation and the FIL seem to be slightly different. According to the FIL, institutions are required to update their EHL posters as follows:

National Center for Consumer and Depositor Assistance
Federal Deposit Insurance Corporation
1100 Walnut Street, Box #11
Kansas City, MO 64106

However, the latest final rule/regulation (12 CFR § 338.4(a)) indicates the following:

The Equal Housing Lender Poster shall be at least 11 by 14 inches in size and have the following text:

Federal Deposit Insurance Corporation, National Center for Consumer and Depositor Assistance, [FDIC-supervised institution should insert mailing address for National Center for Consumer and Depositor Assistance found at]…

As you can see, this has been a relatively controversial issue over the past few months, so if you have any questions about the latest changes, how they might affect your institution, or how to get your EHL poster reviewed for the latest address changes or any other compliance-related topic, feel free to reach out to us on the Hotline.