BAI Hot Topics October 2017

Materials from June 19, 2017 through September 26, 2017 1:30 – 3:00 pm CDST

Presented by Tim Tedrick, Partner Website: www.wipfli.com

Email: ttedrick@wipfli.com

Topics • Your recent BSA or regulatory compliance exam • Questions from and for the group

BSA AML MATERIALS

1. 311 Measure Bank of Dandong 2. CTRXML Announcement May 2017 Final 3. CFPB + FinCEN Joint Memo Elder Exploitation 4. Florida Businessman Sentenced to Prison for Conspiring to Commit Tax and Bank

Fraud 5. FinCEN Fines BTC-e Virtual Currency Exchange $110 Million for Facilitating

Ransomware 6. IRS-ITINS to expire notices 7. Operation Chokepoint 8. Real Estate Advisory and GTO Order 9. FIN 2017 A006 Venezuela

LENDING MATERIALS

1. 2017 distressed or underserved tracts 2. CFPB Executive Summary of 2017 TILA-RESPA rule 2.1 CFPB 2017 TILA-RESPA Rule Detailed Summary of Changes and Clarifications 3. CFPB guidance on early compliance with 2016 mortgage servicing amendments 4. 2017 and 2018 HMDA FIG 4.1 FAQs The Home Mortgage Disclosure Act 4.2 HMDA Loan Scenarios 4.3 Technology Preview the Home Mortgage Disclosure Act 5. CFPB amendments to HMDA 6. CFPB FFIEC HMDA examiner transaction testing guidelines 7. CRA Reporting Software Downloads 8. 2018 Regulation Z thresholds 9. OCC Flood Manual 10. Reasonably Expected Market Area 11. CFPB Final Rule Regulation B

DEPOSIT MATERIALS 1. Prepaid Accounts PROPOSED Amendments 2. 2016 payments study recent developments

Oct 2017 1

Topics 3. CFPB OD prototype 4. JP Morgan Account Screening 5. Source for reports for account screening

UDAPP MATERIALS

1. UMB Identity Protection billing

MISCELLANEOUS MATERIALS

1. OCC Branch Closing Booklet 2. Children’s Online Privacy Protection Rule A Six Step Compliance Plan 3. CFPB Arbitration Agreements Rule executive summary 4. CFPB Spring 2017 rulemaking agenda 5. New IRS due date for W-2 and 1099 nonemployee compensation 6. CFPB Regulatory Inquiry Form 7. Chicago Region 2Q17 FDIC Newsletter 8. NCUA regulatory review notice 2017

Master to do list

Oct 2017 2

31537 Federal Register / Vol. 82, No. 129 / Friday, July 7, 2017 / Proposed Rules

Authority for This Rulemaking

Title 49 of the United States Code specifies the FAA’s authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. ‘‘Subtitle VII: Aviation Programs,’’ describes in more detail the scope of the Agency’s authority.

We are issuing this rulemaking under the authority described in ‘‘Subtitle VII, Part A, Subpart III, Section 44701: General requirements.’’ Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

Regulatory Findings

We determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed, I certify this proposed regulation:

1. Is not a ‘‘significant regulatory action’’ under Executive Order 12866;

2. Is not a ‘‘significant rule’’ under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979);

3. Will not affect intrastate aviation in Alaska to the extent that it justifies making a regulatory distinction; and

4. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

We prepared an economic evaluation of the estimated costs to comply with this proposed AD and placed it in the AD docket.

List of Subjects in 14 CFR Part 39

Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety.

The Proposed Amendment

Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:

PART 39—AIRWORTHINESS DIRECTIVES

■ 1. The authority citation for part 39 continues to read as follows:

Authority: 49 U.S.C. 106(g), 40113, 44701.

§ 39.13 [Amended] ■ 2. The FAA amends § 39.13 by adding the following new airworthiness directive (AD): Bell Helicopter Textron Canada Limited

(Bell): Docket No. FAA–2017–0667; Directorate Identifier 2016–SW–053–AD.

(a) Applicability This AD applies to Bell Model 407

helicopters, certificated in any category.

(b) Unsafe Condition This AD defines the unsafe condition as a

loose tail rotor (TR) driveshaft splined connection, which if not corrected could result in wear in the splines, failure of the TR drive system, and subsequent loss of directional control of the helicopter.

(c) Comments Due Date We must receive comments by September

5, 2017.

(d) Compliance You are responsible for performing each

action required by this AD within the specified compliance time unless it has already been accomplished prior to that time.

(e) Required Actions For helicopters with less than 4,000 hours

time-in-service (TIS), within 100 hours TIS, and for helicopters with 4,000 or more hours TIS, within 50 hours TIS:

(1) Inspect each TR driveshaft segment assembly for rotational and axial play between the adapter and the TR driveshaft at the four positions depicted in Figure 1 of Bell Alert Service Bulletin (ASB) 407–16–113, dated February 12, 2016 (ASB 407–16–113). If there is any axial or rotational play, remove the adapter from the TR driveshaft segment assembly and inspect the adapter, washers, and TR driveshaft for damage. Replace the adapter retention nut and apply a torque of 30 to 50 inch-pounds (5.7 to 7.9 Nm). Replace any part with damage or repair the part if the damage is within the maximum repair damage limitations.

(2) Determine the torque of each TR adapter retention nut at each of the four segment assembly positions depicted in Figure 1 of Bell ASB 407–16–113. If the torque is less than 30 inch-pounds (5.7 Nm), remove the adapter from the TR driveshaft segment assembly and inspect the adapter, washers, and TR driveshaft for damage. Replace the adapter retention nut and apply a torque of 30 to 50 inch-pounds (5.7 to 7.9 Nm). Replace any part with damage or repair the part if the damage is within the maximum repair damage limitations.

(3) Repeat the actions specified in paragraph (e)(1) of this AD at intervals not to exceed 330 hours TIS.

(f) Special Flight Permits Special flight permits are prohibited.

(g) Alternative Methods of Compliance (AMOCs)

(1) The Manager, Safety Management Group, FAA, may approve AMOCs for this AD. Send your proposal to: David Hatfield, Aviation Safety Engineer, Safety Management Group, Rotorcraft Directorate, FAA, 10101 Hillwood Pkwy., Fort Worth, TX 76177; telephone (817) 222–5110; email 9-ASW- FTW-AMOC-Requests@faa.gov.

(2) For operations conducted under a 14 CFR part 119 operating certificate or under 14 CFR part 91, subpart K, we suggest that you notify your principal inspector, or lacking a principal inspector, the manager of the local flight standards district office or certificate holding district office before operating any aircraft complying with this AD through an AMOC.

(h) Additional Information

The subject of this AD is addressed in Transport Canada AD No. CF–2016–21, dated July 7, 2016. You may view the Transport Canada AD on the Internet at http://www.regulations.gov in the AD Docket.

(i) Subject

Joint Aircraft Service Component (JASC) Code: 6510 Tail Rotor Drive Shaft.

Issued in Fort Worth, Texas, on June 27, 2017. Scott A. Horn, Acting Manager, Rotorcraft Directorate, Aircraft Certification Service. [FR Doc. 2017–14231 Filed 7–6–17; 8:45 am]

BILLING CODE 4910–13–P

DEPARTMENT OF THE TREASURY

Financial Crimes Enforcement Network

31 CFR Part 1010

RIN 1506–AB38

Proposal of Special Measure Against Bank of Dandong as a Financial Institution of Primary Money Laundering Concern

AGENCY: Financial Crimes Enforcement Network (FinCEN), Treasury. ACTION: Notice of proposed rulemaking.

SUMMARY: FinCEN is issuing a notice of proposed rulemaking (NPRM), pursuant to section 311 of the USA PATRIOT Act, to prohibit the opening or maintaining of a correspondent account in the United States for, or on behalf of, Bank of Dandong. DATES: Written comments on the notice of proposed rulemaking must be submitted on or before September 5, 2017. ADDRESSES: You may submit comments, identified by 1506–AB38, by any of the following methods:

• Federal E-rulemaking Portal: http:// www.regulations.gov. Follow the

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31538 Federal Register / Vol. 82, No. 129 / Friday, July 7, 2017 / Proposed Rules

1 31 U.S.C. 5318A(c)(1). 2 31 U.S.C. 5318A(c)(2)(B).

3 31 U.S.C. 5318A(a)(4)(A). 4 31 U.S.C. 5318A(b)(5). 5 31 U.S.C. 5318A(a)(4)(B).

instructions for submitting comments. Include Docket Number FinCEN–2017– 0010 and RIN 1506–AB38 in the submission.

• Mail: The Financial Crimes Enforcement Network, P.O. Box 39, Vienna, VA 22183. Include RIN 1506– AB38 in the body of the text. Please submit comments by one method only.

• Comments submitted in response to this NPRM will become a matter of public record. Therefore, you should submit only information that you wish to make publicly available.

• Inspection of comments: FinCEN uses the electronic, Internet-accessible dockets at Regulations.gov as its complete docket; all hard copies of materials that should be in the docket, including public comments, are electronically scanned and placed there. Federal Register notices published by FinCEN are searchable by docket number, RIN, or document title, among other things, and the docket number, RIN, and title may be found at the beginning of such notices. In general, FinCEN will make all comments publicly available by posting them on http://www.regulations.gov. FOR FUTHER INFORMATION CONTACT: The FinCEN Resource Center at (800) 949– 2732.

SUPPLEMENTARY INFORMATION:

I. Statutory Provisions

On October 26, 2001, the President signed into law the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107–56 (the USA PATRIOT Act). Title III of the USA PATRIOT Act amends the anti-money laundering (AML) provisions of the Bank Secrecy Act (BSA), codified at 12 U.S.C. 1829b, 12 U.S.C. 1951–1959, and 31 U.S.C. 5311–5314, 5316–5332, to promote the prevention, detection, and prosecution of international money laundering and the financing of terrorism. Regulations implementing the BSA appear at 31 CFR chapter X. The authority of the Secretary of the Treasury (the Secretary) to administer the BSA and its implementing regulations has been delegated to FinCEN.

Section 311 of the USA PATRIOT Act (section 311), codified at 31 U.S.C. 5318A, grants FinCEN the authority, upon finding that reasonable grounds exist for concluding that a jurisdiction outside of the United States, one or more financial institutions operating outside of the United States, one or more classes of transactions within or involving a jurisdiction outside of the United States, or one or more types of

accounts is of primary money laundering concern, to require domestic financial institutions and domestic financial agencies to take certain ‘‘special measures.’’ The five special measures enumerated in section 311 are prophylactic safeguards that defend the U.S. financial system from money laundering and terrorist financing. FinCEN may impose one or more of these special measures in order to protect the U.S. financial system from these threats. Special measures one through four, codified at 31 U.S.C. 5318A(b)(1)–(b)(4), impose additional recordkeeping, information collection, and reporting requirements on covered U.S. financial institutions. The fifth special measure, codified at 31 U.S.C. 5318A(b)(5), allows FinCEN to prohibit, or impose conditions on, the opening or maintaining in the United States of correspondent or payable-through accounts for, or on behalf of, a foreign banking institution, if such correspondent account or payable- through account involves the foreign financial institution found to be of primary money laundering concern.

Before making a finding that reasonable grounds exist for concluding that a financial institution is of primary money laundering concern, the Secretary is required to consult with both the Secretary of State and the Attorney General.1 The Secretary shall also consider such information as the Secretary determines to be relevant, including the following potentially relevant factors:

• The extent to which such a financial institution is used to facilitate or promote money laundering in or through the jurisdiction, including any money laundering activity by organized criminal groups, international terrorists, or entities involved in the proliferation of weapons of mass destruction (WMD) or missiles;

• the extent to which such a financial institution is used for legitimate business purposes in the jurisdiction; and

• the extent to which such action is sufficient to ensure that the purposes of section 311 are fulfilled, and to guard against international money laundering and other financial crimes.2

Upon finding that a financial institution is of primary money laundering concern, the Secretary may require covered financial institutions to take one or more special measures. In selecting which special measure(s) to take, the Secretary ‘‘shall consult with the Chairman of the Board of Governors

of the Federal Reserve System, any other appropriate Federal banking agency (as defined in Section 3 of the Federal Deposit Insurance Act), the Secretary of State, the Securities and Exchange Commission, the Commodity Futures Trading Commission, the National Credit Union Administration Board, and in the sole discretion of the Secretary, such other agencies and interested parties as the Secretary [of the Treasury] may find appropriate.’’ 3 In imposing the fifth special measure, the Secretary must do so ‘‘in consultation with the Secretary of State, the Attorney General, and the Chairman of the Board of Governors of the Federal Reserve System.’’ 4

In addition, in selecting which special measure(s) to take, the Secretary shall consider the following factors:

• Whether similar action has been or is being taken by other nations or multilateral groups;

• whether the imposition of any particular special measure would create a significant competitive disadvantage, including any undue cost or burden associated with compliance, for financial institutions organized or licensed in the United States;

• the extent to which the action or the timing of the action would have a significant adverse systemic impact on the international payment, clearance, and settlement system, or on legitimate business activities involving the particular jurisdiction, institution, class of transactions, or type of account; and

• the effect of the action on United States national security and foreign policy.5

II. Summary of Notice of Proposed Rulemaking

This NPRM sets forth 1. FinCEN’s finding that Bank of Dandong, a commercial bank located in Dandong, China, is a financial institution of primary money laundering concern pursuant to Section 311, and 2. FinCEN’s proposal of a prohibition under the fifth special measure on the opening or maintaining in the United States of a correspondent account for, or on behalf of, Bank of Dandong. As described more fully below, FinCEN finds that Bank of Dandong is a financial institution of primary money laundering concern because it serves as a conduit for North Korea to access the U.S. and international financial systems, including by facilitating millions of dollars of transactions for companies involved in North Korea’s WMD and

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Home

HOME ABOUT RESOURCES NEWSROOM CAREERS

ResourcesAdvisories/Bulletins/FactSheetsFilingInformationFinancialInstitutionsInternationalLawEnforcementSAR StatsStatutes andRegulationsBankSecrecy ActChapter XFederalRegisterNoticesAdministrativeRulingsGuidanceUSAPATRIOTAct311 SpecialMeasures

QUICK LINKS314(a) InformationSharing List

314(a) Facts andFigures

311 Special Measures

Special Measures for Jurisdictions,Financial Institutions, or InternationalTransactions of Primary MoneyLaundering Concern

Rulemakings Listed in Alphabetical Order

Finding** Notice ofProposedRulemaking

Final Rule Rescinded

Asia WealthBank

11/25/2003 4/12/2004 10/01/2012

Banca Privadad’Andorra

3/10/2015 03/10/2015 2/29/2016(Finding)2/29/2016(NPRM)

Banco DeltaAsia

9/15/2005 9/15/2005 3/14/2007

Bank ofDandong

7/7/2017

Burma**** 11/25/2003 4/12/2004

CommercialBank of Syria(IncludesSyrianLebaneseCommercial

5/18/2004 3/09/2006

Oct 2017 5

314(b) Fact Sheet

314(b)RegistrationForms

Change YourPoint of Contact314(a)

BSA Guidance

BSA Data

BSA RegulatoryEfficiency andEffectivenessInitiative

Chapter X MainPage

RELATEDFAQsMandatory E-Filing FAQs

FinCEN CTRFAQs

FinCEN SARFAQs

BSA FAQs

FinCEN FAQs onCyber-Events

Bank)

DemocraticPeople’sRepublic ofKorea

5/27/2016 5/27/2016 11/9/2016

FBME BankLtd.

7/15/2014 7/15/2014 03/31/2016 (Final Rule)

12/01/2016 (Supplement)

First MerchantBank OSH Ltd.

8/24/2004* --- 4/10/2008

First MerchantFinance Ltd.

8/24/2004* --- 4/10/2008

First MerchantInternationalInc.

8/24/2004* --- 4/10/2008

First MerchantTrust Ltd.

8/24/2004* --- 4/10/2008

FMB FinanceLtd.

8/24/2004* --- 4/10/2008

HalawiExchange Co.

4/23/2013 4/23/2013 ---

Infobank(IncludesBelmetalnergo);renamedTrustbank ***

8/24/2004* --- 12/08/2014

IslamicRepublic of Iran

11/25/2011 11/28/2011 --- ---

JSCCredexBank

5/25/2012 5/30/2012 --- 2/24/2016(Finding)2/24/2016(NPRM)

Kassem Rmeiti& Co. ForExchange

4/23/2013 4/23/2013 --- ---

Liberty ReserveS.A

5/28/2013 5/28/2013 2/19/2016

LebaneseCanadian Bank

2/10/2011 2/10/2011 9/28/2015

Oct 2017 6

SAL

Multibanka 4/21/2005 --- 7/12/2006

MyanmarMayflowerBank

11/25/2003 4/12/2004 10/01/2012

Nauru 12/26/2002 4/17/2003 --- 4/18/2008

Ukraine 12/26/2002 --- 4/17/2003

VEF Banka 4/21/2005 7/12/2006 8/01/2011

* 9/30/04 notice extended the comment period** For any institutions/jurisdictions without a link in this column, FinCEN issued thefinding in the same notice as the proposed rulemaking in the adjacent column.*** Please see FIN-2006-G002

****Notice of Exceptive Relief

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Oct 2017 7

Important Notices to E-Filers: FinCEN Announces Update to the Currency Transaction Report (CTR)

Announces Technical Webinar

May 24, 2017 – In August of 2017, the Currency Transaction Report (CTR) available on the BSA E-Filing System will be updated to adhere to the changes defined in Federal Register notice posted on February 20th, 2016 (https://www.federalregister.gov/documents/2016/02/02/2016-01825/proposed-collection-comment-request-bank-secrecy-act-currency-transaction-report-bctr-revised-layout). New or updated data fields will be added to the online discrete CTR as well as the CTR batch files. The new or updated data fields are:

Part I Person Involved in Transaction

Renamed Item 2d from “Courier Service (private)” to “Common carrier”

Part II Amount and Type of Transaction

Added a checkbox to Item 24 to reflect “Shared Branching”

Part III Transaction Location

Added an Unknown option to Item 29, Primary Federal Regulator

Added an Unknown checkbox to Item 32, EIN

Added Item 37, Country

Added Item 41, Cash in amount for transaction location

Add Item 42, Cash out amount for transaction location

Part IV Filing Institution Contact Information

Added new Part IV “Filing Institution Contact Information” section to collect data about the institution that filed the CTR

Batch filers will be required to submit the updated CTR data in an XML based file, rather than the current ASCII based fixed-length delimited file. The XML User Guide can be downloaded at FinCEN Currency Transaction Report (CTR) Electronic Filing Requirements for XML. The batch CTR XSD file can be downloaded at the following location: FinCEN Currency Transaction Report (CTR) XSD.

Oct 2017 8

Discrete CTR Impact

Discrete filers will be able to utilize the new online form with the new and updated fields in August 2017.

Part I Person Involved in Transaction Changes

Oct 2017 9

Part II Amount and Type of Transaction Changes

Oct 2017 10

Part III Transaction Location Changes

Oct 2017 11

Filers will now be required to fill out the Financial Institution Contact Information through the addition of the Part IV to the discrete report as shown below:

Oct 2017 12

Batch CTR Deadlines

The BSA E-Filing System will continue to accept ASCII based batch files until May of 2018. Batch filers will have nine months from the to be determined go-live date in August to adhere to the new XML specification.

FinCEN will host a technical webinar on June 21st, 2017 to provide an overview of the XML specifications and also address any questions regarding the XML User Guide. Application developers and programmers are urged to register and attend this webinar. Participants can register for the webinar below:

Register now!

https://attendee.gotowebinar.com/register/8816599296795401730

After registering, you will receive a confirmation email containing information about joining the webinar.

View System Requirements

We would request any initial questions be submitted via email at BSAEFilingHelp@fincen.gov prior to the webinar. Please indicate “FinCEN CTR Update Questions” in the subject heading of your email.

Oct 2017 13

THE

DEP

ARTMENT OF THE TREA

SURY

1789

Consumer FinancialProtection Bureau

August 30, 2017

Consumer Financial Protection Bureau United States Department of the Treasury Financial Crimes Enforcement Network (FinCEN)

Memorandum on Financial Institution and Law Enforcement Efforts to Combat Elder Financial Exploitation

Introduction

Elder financial exploitation (EFE), the illegal or improper use of an older person’s funds, property or assets, has emerged as one of the most significant frauds against individual persons. It is the most common form of elder abuse in the United States. Despite its growing prominence, however, only a small fraction of incidents are detected and reported. Older Americans are attractive targets in part because of their assets and regular sources of income, increasing the need for effective interventions. Older people may also be particularly vulnerable due to factors such as isolation, cognitive decline, physical disability, health problems, and bereavement. Thus, their ability to protect themselves from individuals seeking to exploit them may be limited. Once victimized, they often experience not only financial insecurity, but also loss of their dignity and quality of life.

Oct 2017 14

Role of Financial Institutions

Financial institutions can play a key role in detecting, responding to, and preventing EFE.1 Financial institutions are often well-positioned to detect when older account holders have been targeted or victimized. In recognition of this, in 2011, the Financial Crimes Enforcement Network (FinCEN) issued an Advisory to Financial Institutions on Filing Suspicious Activity Reports Regarding Elder Financial Exploitation (“Advisory”).2 The Advisory provided potential “red flag” indicators and instructions on how to report EFE activity through Suspicious Activity Reports (SARs).

Once such threats have been detected, financial institutions should report to law enforcement and the state or local Adult Protective Service agency (APS).3 Timely reporting of suspicious EFE activity, regardless of whether reporting is mandatory or voluntary under state or federal law, is critical in engaging entities that may have complementary information on the victim or the perpetrator from other sources and may be well positioned to collaborate on investigations. In 2013, eight federal regulatory agencies issued interagency guidance clarifying that reporting suspected financial abuse of older adults to appropriate authorities does not generally violate the privacy provisions of the Gramm-Leach-Bliley Act.4

1 See, CFPB, Advisory for financial institutions on preventing and responding to elder financial exploitation (March 2016), available at http://files.consumerfinance.gov/f/201603_cfpb_advisory-for-financial-institutions-on-preventing-and-responding-to-elder-financial-exploitation.pdf; and, CFPB, Recommendations and report for financial institutions on preventing and responding to elder financial exploitation (March 2016), available at http://files.consumerfinance.gov/f/201603_cfpb_recommendations-and-report-for-financial-institutions-on-preventing-and-responding-to-elder-financial-exploitation.pdf.

2 See, FinCEN, FIN-2011-A003, Advisory to Financial Institutions on Filing Suspicious Activity Reports Regarding Elder Financial Exploitation (Feb. 22, 2011), available at https://www.fincen.gov/sites/default/files/shared/fin-2011-a003.pdf. 3 Adult Protective Services (APS) are social services programs provided by state and local governments nationwide, serving older adults and adults with disabilities who are in need of assistance. APS frequently serves as first responders in cases of abuse, neglect or exploitation. APS is not necessarily the name of the agency in each state. The National Adult Protective Services Association (NAPSA) website provides contact information for reporting suspected abuse to APS in every state. See, NAPSA, What is Adult Protective Services?, at http://www.napsa-now.org/get-help/how-aps-helps/ (last visited August 23, 2017).

4 Fed. Reserve, CFTC, CFPB, FDIC, FTC, NCUA, OCC & SEC, Interagency Guidance on Privacy Laws and Reporting Financial Abuse of Older Adults (Sept. 23, 2013), available at http://files.consumerfinance.gov/f/201309_cfpb_elder-abuse-guidance.pdf.

Oct 2017 15

Collaboration among Financial Institutions, Law Enforcement and APS

Prevention and response to EFE is improved when financial institutions, law enforcement and APS develop collaborative relationships. Financial institutions and law enforcement can share information about each organization’s policies and procedures for detecting, assessing, and reporting EFE. Such relationships can facilitate timely response to reports and ensure that staff at each stakeholder organization has appropriate points of contact when questions or challenges arise. When appropriate, financial institutions can provide expert consultation on banking and finance documents, processes, and procedures to assist law enforcement and APS with case investigations.

In various locations around the country, key stakeholders convene as multidisciplinary networks to successfully address the problem of elder abuse including financial exploitation.5 These networks engage in activities such as education, training, and individual case review. Financial institutions are encouraged to participate in these local networks and can identify such networks in their area by contacting the APS agency, the local Area Agency on Aging (AAA), or a senior information and assistance hotline. The Eldercare Locator, supported by the U.S. Department of Health and Human Services, enables users to search for their local APS agency or AAA and is accessible at www.eldercare.gov. Financial institutions may also provide a list of these points of contact and sources of information to their older account holders and to caregivers.

Law Enforcement Use of Suspicious Activity Reports

One resource that may aid law enforcement investigations of EFE, even at the local level, is Suspicious Activity Reports (SARs) that financial institutions file with FinCEN. A financial institution may be required to file a SAR if it knows, suspects, or has reason to suspect a transaction conducted or attempted by, at, or through the financial institution:

§ involves funds derived from illegal activity or attempts to disguise funds derived from illegal activity,

§ is designed to evade regulations promulgated under the Bank Secrecy Act (BSA),

§ lacks a business or apparent lawful purpose, or

5 CFPB, Report and Recommendations: Fighting Elder Financial Exploitation through Community Networks (August 2016), available at https://www.consumerfinance.gov/documents/873/082016_cfpb_Networks_Study_Report.pdf.

Oct 2017 16

§ involves the use of the financial institution to facilitate criminal activity. 6

On SAR forms, financial institutions include essential facts about the reported suspicious activity, including dates, location, and transaction amounts. Further, narratives within the SAR may include account numbers and references to supporting documentation, as well as information about individuals suspected to be involved in the suspicious activity. SARs can play an important role in the fight against EFE by providing information and references to any supporting documentation that can trigger an investigation, support an ongoing investigation, or identify previously unknown subjects and entities.7

FinCEN’s 2011 advisory highlighted the issue of EFE to SAR filers. Additionally, FinCEN’s new electronic filing form launched in 2013 includes a specific check box indicating that the filer suspects elder financial exploitation, thereby providing a streamlined process for law enforcement agencies to access SARs filed on this type of suspicious activity.

Access to SARs and their use is restricted under federal law. Knowledge concerning the existence of a SAR is strictly confidential and is generally limited to law enforcement and financial regulatory authorities.8 If a law enforcement agency does not have direct access to FinCEN’s database through a Memorandum of Understanding with FinCEN, the agency can contact FinCEN at frc@fincen.gov for referral to an appropriate state or regional point of contact, who can assist the investigator with a SAR-related inquiry. Learn more about the limitations on the use and disclosure of SARs by reading FinCEN Advisory FIN-2010-A014, Maintaining the Confidentiality of Suspicious Activity Reports.9 If an investigator has a question on the use and disclosure of a SAR, they can contact the FinCEN Resource Center at FRC@fincen.gov

6 31 C.F.R. §§ 1020.320, 1021.320, 1022.320, 1023.320, 1024.320, 1025.320, 1026.320, 1029.320, and 1030.320.

7 For further information, see FinCEN, FIN-2007-G003, Guidance, Suspicious Activity Report Supporting Documentation (June 13, 2007), available at https://www.fincen.gov/sites/default/files/shared/Supporting_Documentation_Guidance.pdf.

8 See FinCEN, Confidentiality of Suspicious Activity Reports, 75 Fed. Reg. 75,593, 75,593-75,607 (Dec. 3, 2010), which sets forth clarification on the reach of the statutory language in 31 U.S.C. § 5318(g)(2).

9 FinCEN, FIN-2010-A014, Advisory, Maintaining the Confidentiality of Suspicious Activity Reports (Nov 23, 2010), available at https://www.fincen.gov/sites/default/files/advisory/FIN-2010-A014.pdf.

Oct 2017 17

Home » Office of Public Affairs » News SHARE

FOR IMMEDIATE RELEASE Monday, July 17, 2017

JUSTICE NEWS

Department of Justice

Office of Public Affairs

Florida Businessman Sentenced to Prison for Conspiring toCommit Tax and Bank Fraud

Concealed Approximately $2.5 Million in Secret Belize Accounts

A Florida businessman was sentenced today to 57 months in prison in U.S. District Court for theMiddle District of Florida for conspiring to commit tax and bank fraud, announced Acting DeputyAssistant Attorney General Stuart M. Goldberg of the Justice Department’s Tax Division. According to documents filed with the court, Casey Padula, 48, of Port Charlotte, was the soleshareholder of Demandblox Inc., a marketing and information technology business. Padulaconspired with others to move funds for his benefit from Demandblox to offshore accounts inBelize and disguised these transfers as business expenses in Demandblox’s corporate records.Padula created two offshore companies in Belize: Intellectual Property Partners Inc. (IPPI) andLatin American Labor Outsourcing Inc. (LALO). He opened and controlled bank accounts in thenames of these entities at Heritage International Bank & Trust Limited (Heritage Bank), a financialinstitution located in Belize. From 2012 through 2013, Padula caused periodic payments to be sentfrom Demandblox to his accounts at Heritage Bank and deposited approximately $2,490,688.Padula used the funds to pay for personal expenses and purchase significant personal assets.However, he falsely recorded these payments in Demandblox’s corporate books as intellectualproperty rights or royalty fees and deducted them as business expenses on Demandblox’s 2012 and2013 corporate tax returns. As a result of these false deductions, Padula caused a tax loss of morethan $728,000. Padula also conspired with investment advisors Joshua VanDyk and Eric St-Cyr at Clover AssetManagement (CAM), a Cayman Islands investment firm, to open and fund an investment accountthat he would control, but that would not be in his name. Heritage Bank had an account at CAM inits name and its clients could get a subaccount through Heritage Bank that would not be in theclient’s name but rather would be a numbered account. Padula transferred $1,000,080 from theIPPI bank account at Heritage Bank in Belize to CAM to fund a numbered account that concealed

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Updated July 17, 2017

his financial interest in it. Padula failed to disclose this account to the U.S. Department of Treasuryand the Internal Revenue Service (IRS) despite being required to do so under the law. In addition to the tax fraud, Padula also conspired with others to commit bank fraud. Padula had amortgage on his Port Charlotte, Florida home of approximately $1.5 million with Bank of America(BoA). In 2012, he sent a letter to the bank stating that he could no longer repay his loan. At thesame time, Padula provided Robert Robinson III, 43, who acted as a nominee buyer, with morethan $625,000 from his IPPI bank account in Belize to fund a short sale of Padula’s home. Padulaand Robinson signed a contract, which falsely represented that the property was sold through an“arms-length transaction,” and agreed that Padula would not be permitted to remain in theproperty after the sale. Padula in fact never moved from his home and less than two months afterthe closing, Robinson conveyed it back to Padula by transferring ownership to one of Padula’sBelizean entities for $1. Robinson was also sentenced today to five years of probation for signing afalse Form HUD-1 in connection with his role in the scheme. “Casey Padula used secret numbered bank accounts, foreign shell companies and phonydeductions to hide millions and evade U.S. taxes,” said Acting Deputy Assistant Attorney GeneralGoldberg. “His 57 month sentence today makes clear that there is no place safe in the world for taxcheats to hide their money and feel secure that the Department of Justice and the IRS will notuncover their scheme and hold them fully accountable.” “As Mr. Padula has learned, using shell companies and offshore accounts is not tax planning; it’stax fraud,” said Chief Don Fort of IRS Criminal Investigation (CI). “The use of sophisticatedinternational financial transactions does not prevent IRS CI from following the trail of money backto the person breaking the law. In conjunction with our law enforcement partners, we will continueour ongoing efforts to pursue individuals who use these offshore schemes to circumvent the law.” In addition to the term of prison imposed by U.S. District Court Judge Sherri Polster Chappell,Padula was ordered to serve three years of supervised release and to pay a fine of $100,000 and topay restitution of $728,609 to the IRS and to BoA in the amount of $739,459.90. He wasremanded into custody. Acting Deputy Assistant Attorney General Goldberg thanked special agents of IRS CI, whoconducted the investigation, and Assistant Chiefs Todd Ellinwood and Caryn Finley of the TaxDivision, who prosecuted this case. Acting Deputy Assistant Attorney General Goldberg alsothanked the U.S. Attorney’s Office of the Middle District of Florida for its assistance. Additional information about the Tax Division’s enforcement efforts can be found on the division’swebsite.

Topic(s): Tax

Component(s): Tax DivisionUSAO - Florida, Middle

Press Release Number: 17-789

Oct 2017 19

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FinCEN Fines BTC-e Virtual CurrencyExchange $110 Million for FacilitatingRansomware, Dark Net Drug Sales

BTC-e July 26 Press Release FINAL1.pdf 108.12 KB

Steve Hudak 703-905-3770July 27, 2017

Treasury’s First Action Against a Foreign-Located Money ServicesBusiness

WASHINGTON—The Financial Crimes Enforcement Network (FinCEN), working in coordination with the U.S.Attorney’s Office for the Northern District of California, assessed a $110,003,314 civil money penalty todayagainst BTC-e a/k/a Canton Business Corporation (BTC-e) for willfully violating U.S. anti-money laundering(AML) laws. Russian national Alexander Vinnik, one of the operators of BTC-e, was arrested in Greece thisweek, and FinCEN assessed a $12 million penalty against him for his role in the violations.

BTC-e is an internet-based, foreign-located money transmitter that exchanges fiat currency as well as theconvertible virtual currencies Bitcoin, Litecoin, Namecoin, Novacoin, Peercoin, Ethereum, and Dash. It is oneof the largest virtual currency exchanges by volume in the world. BTC-e facilitated transactions involvingransomware, computer hacking, identity theft, tax refund fraud schemes, public corruption, and drugtrafficking.

“We will hold accountable foreign-located money transmitters, including virtual currency exchangers, that dobusiness in the United States when they willfully violate U.S. anti-money laundering laws,” said Jamal El-Hindi, Acting Director for FinCEN. “This action should be a strong deterrent to anyone who thinks that theycan facilitate ransomware, dark net drug sales, or conduct other illicit activity using encrypted virtualcurrency. Treasury’s FinCEN team and our law enforcement partners will work with foreign counterpartsacross the globe to appropriately oversee virtual currency exchangers and administrators who attempt to

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subvert U.S. law and avoid complying with U.S. AML safeguards.”

FinCEN acted in coordination with law enforcement’s seizure of BTC-e and Vinnik’s arrest. The InternalRevenue Service-Criminal Investigation Division, Federal Bureau of Investigation, United States SecretService, and Homeland Security Investigations conducted the criminal investigation.

Among other violations, BTC-e failed to obtain required information from customers beyond a username, apassword, and an e-mail address. Instead of acting to prevent money laundering, BTC-e and its operatorsembraced the pervasive criminal activity conducted at the exchange. Users openly and explicitly discussedcriminal activity on BTC-e’s user chat. BTC-e’s customer service representatives offered advice on how toprocess and access money obtained from illegal drug sales on dark net markets like Silk Road, HansaMarket, and AlphaBay.

BTC-e also processed transactions involving funds stolen between 2011 and 2014 from one of the world’slargest bitcoin exchanges, Mt. Gox. BTC-e processed over 300,000 bitcoin in transactions traceable to thetheft. FinCEN has also identified at least $3 million of facilitated transactions tied to ransomware attacks suchas “Cryptolocker” and “Locky.” Further, BTC-e shared customers and conducted transactions with the now-defunct money laundering website Liberty Reserve. FinCEN previously issued a finding under Section 311 ofthe USA PATRIOT Act that identified Liberty Reserve as a financial institution of primary money launderingconcern.

BTC-e has conducted over $296 million in transactions of bitcoin alone and tens of thousands of transactionsin other convertible virtual currencies. The transactions included funds sent from customers located withinthe United States to recipients who were also located within the United States. BTC-e also concealed itsgeographic location and its ownership. Regardless of its ownership or location, the company was required tocomply with U.S. AML laws and regulations as a foreign-located MSB including AML program, MSBregistration, suspicious activity reporting, and recordkeeping requirements. This is the second supervisoryenforcement action FinCEN has taken against a business that operates as an exchanger of virtual currency,and the first it has taken against a foreign-located MSB doing business in the United States.

###

FinCEN’s mission is to safeguard the financial system from illicit use and combat money laundering andpromote national security through the collection, analysis, and dissemination of financial intelligence andstrategic use of financial authorities.

Financial Institution:Money Services Businesses

Oct 2017 21

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IRS Begins Issuing Notices to Taxpayers whose ITINs Expire by End of 2017

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IRS YouTube Videos:Individual Taxpayer Identification Number - English | Spanish

IR-2017-128, Aug. 8, 2017

WASHINGTON — The Internal Revenue Service began mailing letters this month to more than 1 million taxpayers with expiring Individual Taxpayer Identification Numbers and urges recipients to renew them as quickly as possible to avoid tax refund and processing delays.

ITINs with middle digits 70, 71, 72 or 80 are set to expire at the end of 2017. The notice being mailed -- CP-48 Notices, You must renew your Individual Taxpayer Identification Number (ITIN) to file your U.S. tax return -- explains the steps taxpayers need to take to renew the ITIN if it will be included on a U.S. tax return filed in 2018.

The notices will be issued over a five-week period beginning in early August. Taxpayers who receive the notice but have acted to renew their ITIN do not need to take further steps unless another family member is affected.

“We urge people who receive this letter to renew their ITIN as quickly as possible to avoid tax refund and processing delays next year,” said IRS Commissioner John Koskinen. “Taking steps now and renewing early will make things go much more smoothly for ITIN holders when it comes time to file their taxes.”

Under the Protecting Americans from Tax Hikes (PATH) Act, ITINs that have not been used on a federal tax return at least once in the last three consecutive years will expire Dec. 31, 2017, and as mentioned above, ITINs with middle digits 70, 71, 72 or 80 will also expire at the end of the year. Affected taxpayers who expect to file a tax return in 2018 must submit a renewal application.

As a reminder, ITINs with middle digits 78 and 79 that expired at the end of last year can be renewed at any time.

Who Needs an ITIN?ITINs are used by people who have tax filing or income reporting obligations under U.S. law but are not eligible for a Social Security number (SSN). ITIN holders should visit the ITIN information page on IRS.gov and take a few minutes to understand the guidelines.

Who Should Renew an ITIN?Taxpayers with ITINs set to expire and who need to file a tax return in 2018 must submit a renewal application. Others do not need to take any action.

• ITINs with middle digits 70, 71, 72, or 80 (For example: 9NN-70-NNNN) need to be renewed if the taxpayer will have a filing requirement in 2018.

• Taxpayers whose ITINs expired due to lack of use should only renew their ITIN if they will have a filing requirement in 2018.

• Taxpayers who are eligible for, or who have, an SSN should not renew their ITIN, but should notify IRS both of their SSN and previous ITIN, so that their accounts can be merged.

• Taxpayers whose ITINs have middle digits 78 or 79 that have expired should renew their ITIN if they will have a filing requirement in 2018.

Family Option Remains AvailableTaxpayers with an ITIN with middle digits 70, 71, 72, 78, 79 or 80 have the option to renew ITINs for their entire family at the same time. Those who have received a renewal letter from the IRS can choose to renew the family’s ITINs together even if family members have an ITIN with middle digits other than 70, 71, 72, 78, 79 or 80. Family members include the tax filer, spouse and any dependents claimed on the tax return.

How to Renew an ITINTo renew an ITIN, taxpayers must complete a Form W-7 and submit all required documentation; taxpayers are not required to attach a federal tax return

The IRS is currently accepting ITIN renewals. There are three ways to submit the W-7 application package:

• Mail the Form W-7, along with original identification documents or copies certified by the issuing agency, to the IRS address listed on the Form W-7 instructions. The IRS will review the identification documents and return them within 60 days.

• Taxpayers have the option to work with Certified Acceptance Agents (CAAs) authorized by the IRS to help them apply for an ITIN. CAAs can certify all identification documents for primary and secondary taxpayers and certify that an ITIN application is correct before submitting it to the IRS for processing. A CAA can also certify passports and birth certificates for dependents. This saves taxpayers from mailing original documents to the IRS.

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Page Last Reviewed or Updated: 08-Aug-2017

• In advance, taxpayers can call and make an appointment at a designated IRS Taxpayer Assistance Center instead of mailing original identification documents to the IRS.

Avoid Common Errors Now; Prevent Delays Next YearSeveral common errors can delay some ITIN renewal applications. The mistakes generally center on missing information and/or insufficient supporting documentation. Here are a few examples of mistakes taxpayers should avoid:

• Filing with an expired ITIN. Federal returns that are submitted in 2018 with an expired ITIN will be processed. However, exemptions and/or certain tax credits will be disallowed. Taxpayers will receive a notice in the mail advising them of the change to their tax return and their need to renew their ITIN. Once the ITIN is renewed, any applicable exemptions and credits will be restored and any refunds will be issued.

• Missing a reason for applying. A reason for needing the ITIN must be selected on the Form W-7.

• Missing a complete foreign address. When renewing an ITIN, if Reason B (non-resident alien) is marked, the taxpayer must include a complete foreign address on their Form W-7.

• Mailing incorrect identification documents. Taxpayers mailing their ITIN renewal applications must include original identification documents or certified copies by the issuing agency and any other required attachments. They must also include the ITIN assigned to them and the name under which it was issued in 6e-f.

Taxpayers should review the Form W-7 instructions for detailed information and carefully check their package before submitting it.

As a reminder, the IRS no longer accepts passports that do not have a date of entry into the U.S. as a stand-alone identification document for dependents from a country other than Canada or Mexico, or dependents of U.S. military personnel overseas. The dependent’s passport must have a date of entry stamp, otherwise the following additional documents to prove U.S. residency are required:

• U.S. medical records for dependents under age 6,• U.S. school records for dependents under age 18, and• U.S. school records (if a student), rental statements, bank statements or utility bills listing the

applicant’s name and U.S. address, if over age 18

IRS Encourages More Applicants for the Acceptance Agent Program to Expand ITIN ServicesTo increase the availability of ITIN services nationwide, particularly in communities with high ITIN usage, the IRS is actively recruiting Certified Acceptance Agents. Applications are now accepted year-round. Interested individuals, community outreach partners and volunteers at tax preparation sites are encouraged to review program changes and requirements.

The IRS continues to work with partner groups and others in the ITIN community to share information about these important changes. To assist taxpayers, the IRS has a variety of informational materials, including flyers and fact sheets available in several languages on the ITINinformation page on IRS.gov.

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• . ' . . .

Office of the Assistant Attorney General

The Honorable Bob Goodlatte Chairman Committee on the Judiciary U.S. House of Representatives Washington, DC 20515

Dear Mr. Chairman:

U.S. Department of Justice

Office of Legislative Affairs

Washington, D. C. 20530

AUG 1 6'.2D17

This responds to your letter to the Attorney General dated August 10, 2017, regarding Operation Chokepoint, a misguided initiative conducted during the previous administration. We share your view that law abiding businesses should not be targeted simply for operating in an industry that a particular administration might disfavor. Enforcement decisions should always be made based on the facts and the applicable law. We are sending identical responses to the other Members who joined in your letter.

Operation Chokepoint entailed the issuance of a set of subpoenas in 2013. Attached to some of those subpoenas was a guidance document issued by the Federal Deposit Insurance Corporation (FDIC). That FDIC guidance included a footnote listing certain "elevated-risk" merchants, including short-term lenders and firearms dealers. The FDIC subsequently rescinded its list of purportedly "high-risk" merchants. The Department of Justice (Department) strongly agrees with that withdrawal. All of the Department's bank investigations conducted as part of Operation Chokepoint are now over, the initiative is no longer in effect, and it will not be undertaken again. Some of the responses to those subpoenas led to the discovery of other criminal activity involving certain individuals and non-bank entities. To the extent the Department continues to pursue those ancillary investigations, none relates to or seeks to deter lawful conduct.

The Department is committed to bringing enforcement actions only where warranted by the facts and the applicable law, without regard to political preferences. This approach honors the Department's fundamental obligation to focus on the lawbreakers that deserve our undivided attention, and thereby protect the American public from fraud and other criminal activity. We reiterate that the Department will not discourage the provision of financial services to lawful industries, including businesses engaged in short-term lending and firearms-related activities.

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3. See 31 U.S.C. § 5318(g)(3).

FIN-2017-A003 August 22, 2017

This Advisory should be shared with:• Real Estate Professionals

• Organization Executives

• Comptroller/Treasury/Accounting Departments

• Compliance Departments

• Legal Departments

Advisory to Financial Institutions and Real Estate Firms and Professionals

Drug traffickers, corrupt officials, money launderers, and other criminals seek to exploit real estate transactions to hide their illicit profits, conceal their identities, and launder funds.

The Financial Crimes Enforcement Network (FinCEN) is issuing this advisory to provide financial institutions and the real estate industry with information on money laundering risks associated with certain real estate transactions. As highlighted by recent Geographic Targeting Orders (GTOs) issued by FinCEN, real estate transactions involving luxury property purchased through shell companies—particularly when conducted with cash and no financing—can be an attractive avenue for criminals to launder illegal proceeds while masking their identities.1

1. Although FinCEN to date has focused on residential real estate, money laundering can also involve commercial real estate transactions.

Each type of financial institution—defined by law to also include “persons involved in real estate closings and settlements”—has certain anti-money laundering obligations and can provide

valuable reporting on potential money laundering and terrorist financing.2

2. FinCEN—a bureau of the U.S. Department of the Treasury—administers and issues regulations pursuant to the Bank Secrecy Act (BSA). The BSA is the commonly used term for statutory enactments requiring U.S. financial institutions to assist U.S. government agencies to detect and prevent money laundering, terrorism finance, and other illegal activity. The BSA’s definition of “financial institution” includes “persons involved in real estate closings and settlements.” 31 U.S.C. § 5312(a)(2)(U). While that term has not yet been defined under FinCEN’s regulations, it is not intended to include individual buyers and sellers.

While real estate brokers, escrow agents, title insurers, and other real estate professionals are not required to, FinCEN encourages them to voluntarily report suspicious transactions involving real estate purchases and sales. As with other financial institutions under the Bank Secrecy Act (BSA), a safe harbor from liability exists with respect to the filing of suspicious activity reports, including voluntary ones, by persons involved in real estate closings and settlements.3

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Money Laundering Risks in the Real Estate SectorReal estate transactions and the real estate market have certain characteristics that make them vulnerable to abuse by illicit actors seeking to launder criminal proceeds. For example, many real estate transactions involve high-value assets, opaque entities, and processes that can limit transparency because of their complexity and diversity. In addition, the real estate market can be an attractive vehicle for laundering illicit gains because of the manner in which it appreciates in value, “cleans” large sums of money in a single transaction, and shields ill-gotten gains from market instability and exchange-rate fluctuations.4

4. Money laundering is a crime orchestrated to conceal the source of illegal proceeds so that the money can be used without detection of its criminal source. Visit www.fincen.gov for further information.

For these reasons and others, drug traffickers, corrupt officials, and other criminals can and have used real estate to conceal the existence and origins of their illicit funds.

Example: Corruption and Residential Real Estate

A high-profile case illustrating money laundering risks in the real estate sector involves 1Malaysia Development Berhad (1MDB), a Malaysian sovereign wealth fund. In 2016, the U.S. Department of Justice sought forfeiture of over $1 billion in assets—including luxury real estate—associated with funds stolen by corrupt foreign officials from 1MDB. This included a hotel, two homes, and a mansion in Beverly Hills, CA; a home in Los Angeles, CA; a condominium, two apartments, and a penthouse in New York, NY; and, a townhouse in London, England; all with a collected value estimated at approximately $315 million.

This money laundering risk in the real estate market was a principal driver of FinCEN’s decision to issue GTOs, which, as described below, have provided greater insight into illicit finance risks in the high-end real estate market. FinCEN’s analysis of BSA and GTO reported data, law enforcement information, and real estate deed records, as depicted by the case studies in this advisory, indicates that high-value residential real estate markets are vulnerable to penetration by foreign and domestic criminal organizations and corrupt actors, especially those misusing otherwise legitimate limited liability companies or other legal entities to shield their identities. In addition, when these transactions are conducted without any financing (i.e., “all-cash”), they can potentially avoid traditional anti-money laundering (AML) measures adopted by lending financial institutions, presenting increased risk.

FinCEN encourages both financial institutions subject to mandatory suspicious reporting requirements, as well as real estate professionals filing voluntary suspicious activity reports, to keep the risks detailed below in mind when identifying and reporting suspicious transactions.

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Use of Shell Companies Decreases Transparency

Criminals launder money to obscure the illicit origin of their funds. To this end, money launderers can use a number of vehicles to reduce the transparency of their transactions. One such vehicle, highlighted in the below case study, is the use of shell companies. Shell companies are typically non-publicly traded corporations, limited liability companies (LLCs), or trusts that have no physical presence beyond a mailing address and generate little to no independent economic value.5

5. For further information on shell companies, see FinCEN Guidance FIN-2006-G014 “Potential Money Laundering Risks Related to Shell Companies” (November 2006) and FinCEN’s SAR Activity Review Trends, Tips, and Issues: Issue 1 (October 2000), Issue 2 (June 2001), and Issue 7 (August 2004).

Most shell companies are formed by individuals and businesses for legitimate purposes, such as to hold stock or assets of another business entity or to facilitate domestic and international currency trades, asset transfers, and corporate mergers. Shell companies can often be formed without disclosing the individuals that ultimately own or control them (i.e., their beneficial owners) and can be used to conduct financial transactions without disclosing their true beneficial owners’ involvement. Criminals abuse this anonymity to mask their identities, involvement in transactions, and origins of their wealth, hindering law enforcement efforts to identify individuals behind illicit activity.6

6. In May 2018, many financial institutions will be required to implement customer due diligence obligations and collect beneficial ownership information on their legal entity customers at account opening. See, 81 Fed. Reg. 91 (May 2016).

Example: Drug Trafficking, Luxury Real Estate, and Shell Companies

An example of abuse of the luxury real estate sector involves current Venezuelan Vice President Tareck El Aissami and his frontman Samark Lopez Bello. The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated El Aissami under the Foreign Narcotics Kingpin Designation Act for playing a significant role in international narcotics trafficking. Lopez Bello was designated for providing material assistance, financial support, or goods or services in support of the international narcotics trafficking activities of, and acting for or on behalf of, El Aissami.7

7. See “Treasury Sanctions Prominent Venezuelan Drug Trafficker Tareck El Aissami and His Primary Frontman Samark Lopez Bello” (February 2017).

In addition, OFAC designated shell companies tied to Lopez Bello that were used to hold real estate.8

8. Id. Generally, under U.S. law, the assets and accounts of a designated individual, entity, or country must be frozen or blocked by U.S. individuals or entities.

Lopez Bello is tied to significant property and other assets, which were also blocked as a result of OFAC’s action.

The misuse of shell companies to launder money is a systemic concern for law enforcement and regulatory agencies, but it is of particular concern in the “all-cash” segment of the real estate market, which currently has fewer AML protections.

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Use of “All-Cash” Real Estate Purchases Further Decreases Transparency

Criminals can use all-cash purchases to make payments in full for properties and evade scrutiny—on themselves and the origin of their wealth—that is regularly performed by financial institutions in transactions involving mortgages.9

9. The BSA and FinCEN regulation generally require covered financial institutions—including those providing financing—to conduct diligence on their customers and their source of wealth.

All-cash transactions account for nearly one in four residential real estate purchases, totaling hundreds of billions of dollars nationwide, and are particularly exposed to abuse.10

10. The National Association of Realtors (NAR) consistently reports monthly figures on all-cash sales for existing homes to near 25 percent. See http://www.realtor.org/topics/existing-home-sales.

All-cash transactions account for an even larger stake in some U.S. markets. For instance, nearly 50 percent of residential real estate sales in Miami-Dade County were all-cash transactions in 2015 and 2016.11

11. See the Miami Association of Realtors’ 2016 Yearly Market Summaries for Single Family Homes and Townhouses and Condos.

Many all-cash transactions are routine and legitimate, however, they also present significant opportunities for exploitation by illicit actors.

Example: Fraud, Money Laundering, and All-Cash Purchases

An example highlighting fraud and money laundering through all-cash transactions involves real estate agent Anthony Keslinke, who in 2016 was jailed, ordered to pay $1,427,916 in restitution to victims, and forfeited $3,808,831. Keslinke was the leader of both a large-scale bank fraud conspiracy and a separate money laundering conspiracy. Between 2011 and 2014, Keslinke used straw buyers and altered records and documents to purchase real estate with cash throughout Northern California, which he then resold at significant financial gain.12

12. See the Internal Revenue Service’s (IRS) “Examples of Money Laundering Investigations – Fiscal Year 2016.”

FinCEN’s Geographic Targeting Orders (GTOs)In 2016 and 2017, FinCEN issued GTOs to better understand the vulnerabilities presented by the use of shell companies to engage in all-cash residential real estate transactions. A GTO is an order issued by FinCEN under the BSA that imposes additional recordkeeping or reporting requirements on financial institutions or other businesses in a specific geographic area.13

13. See 31 U.S.C. § 5326(a), 31 CFR § 1010.370, and Treasury Order 180-01.

In this case, FinCEN issued GTOs requiring certain U.S. title insurance companies to record and report information, including beneficial ownership, about legal entities used to make non-financed purchases of high-value residential real estate in seven major U.S. geographic areas.14

14. See “GTOs Involving Certain Real Estate Transactions Frequently Asked Questions” (August 2016), “FinCEN Renews Real Estate “GTOs” to Identify High-End Cash Buyers in Six Major Metropolitan Areas” (February 2017), and “FinCEN Targets Shell Companies Purchasing Luxury Properties in Seven Major Metropolitan Areas” (August 2017).

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As of May 2, 2017, over 30 percent of the real estate transactions reported under the GTOs involved a beneficial owner or purchaser representative that had been the subject of unrelated Suspicious Activity Reports (SARs) filed by U.S. financial institutions. In other words, the beneficial owners or purchaser representatives in a significant portion of transactions reported under the GTO had been previously connected to a wide array of suspicious activities, including:

• A beneficial owner suspected of being connected to over $140 million in suspicious financial activity since 2009 and who sought to disguise true ownership of related accounts.

• Two beneficial owners (husband and wife) involved in a $6 million purchase of two condominiums were named in nine SARs filed from 2013 – 2016 in connection with allegations of corruption and bribery associated with South American government contracts.

• A beneficial owner suspected of being connected to a network of individuals and shell companies that received over $6 million in wire transfers with no clear business purpose from entities in South America. Much of these funds were used for payments to various real estate related businesses.

• Eleven SARs filed from 2008 through 2015 named either the buyer (an LLC), beneficial owner, or purchaser’s representative involved in a GTO-reported $4 million purchase of a residential unit. Law enforcement records indicate that both the purchaser’s representative and his business associate were associated with a foreign criminal organization involved in narcotics smuggling, money laundering, health care fraud, and the illegal export of automobiles.

Review of U.S. Anti-Money Laundering Regulations in the Real Estate Sector

The real estate sector is one of many within the U.S. economy for which anti-money laundering (AML) safeguards have been established to protect the U.S. financial system.15

15. 31 U.S.C. § 5318(h) requires financial institutions, including “persons involved in real estate closings and settlements,” to establish an anti-money laundering program that includes, at a minimum: (A) the development of internal policies, procedures, and controls; (B) the designation of a compliance officer; (C) an ongoing employee training program; and (D) an independent audit function to test programs.

More specifically, covered financial institutions—including depository institutions, loan or finance companies, and housing government-sponsored enterprises like Fannie Mae and Freddie Mac—generally have obligations to establish AML programs, report suspicious activity to FinCEN using Suspicious Activity Reports (SARs), and understand their customers and their source of wealth. In addition, beginning in May 2018, many financial institutions will be required to implement customer due diligence obligations and collect beneficial ownership information on their legal entity customers opening accounts.16

16. 81 Fed. Reg. 91 (May 2016).

FinCEN provides substantial guidance and information on how to implement these requirements effectively.17

17. For additional information, see https://www.fincen.gov/resources/financial-institutions/mortgage-co-broker.

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While FinCEN currently has exempted them from these broader obligations, persons involved in real estate closings and settlements do participate in efforts to safeguard the U.S. real estate industry and financial system from money laundering and terrorism financing through their existing AML/CFT requirements.18

18. See FinCEN’s advance notice of proposed rulemaking “Anti-Money Laundering Program Requirements for ‘Persons Involved in Real Estate Closings and Settlements’’’ (April 2003).

They, like all U.S. persons engaged in trade and business, must file reports on transactions in currency and certain monetary instruments involving more than $10,000 (commonly referred to as “Form 8300”).19

19. 31 CFR § 1010.330 (Form 8300). A Form 8300 also may be filed voluntarily for any suspicious transaction, even if the total amount does not exceed $10,000.

They also may be required to annually report on foreign bank and financial accounts they own or control, report the transportation of currency across the U.S. border, and keep associated records, as well as respond to FinCEN-issued GTOs.20

20. 31 CFR §§ 1010.350 (FBAR), 1010.340 (CMIR), 1010.430 (recordkeeping), and 1010.370 (GTO).

In addition, as other financial institutions under the BSA, persons involved in real estate closings and settlements—which may include real estate brokers, escrow agents, title insurers, and other real estate professionals—can voluntarily report suspicious activity and such disclosures would be protected from liability under the BSA’s safe harbor.

The real estate industry recognizes the seriousness and importance of protecting the U.S. real estate market from abuse. For example, the National Association of Realtors has issued red flags and voluntary guidelines to assist real estate professionals minimize the risk of real estate becoming a vehicle for money laundering.21

21. See “Tips for Spotting Global Money Laundering Schemes” (January 2017) and “Anti-Money Laundering Guidelines for Real Estate Professionals” (November 2012).

Mandatory Reporting of Suspicious ActivityA covered financial institution is required to file a SAR if it knows, suspects, or has reason to suspect a transaction conducted or attempted by, at, or through the financial institution involves funds derived from: illegal activity, attempts to disguise funds derived from illegal activity, is designed to evade regulations promulgated under the BSA, lacks a business or apparent lawful purpose, or involves the use of the financial institution to facilitate criminal activity.22

22. 31 C.F.R. §§ 1020.320, 1021.320, 1022.320, 1023.320, 1024.320, 1025.320, 1026.320, 1029.320, and 1030.320.

Voluntary Reporting of Suspicious ActivitySARs play an important role in assisting law enforcement to combat crime as they identify possible illicit activity and criminals. FinCEN encourages persons involved in real estate closings and settlements—which may include real estate brokers, escrow agents, title insurers, and other real estate professionals—to voluntarily file a SAR to report any suspicious transactions.23

23. For instructions on how to file a SAR with FinCEN see https://www.fincen.gov/resources/filing-information.

These persons are well-positioned to identify potentially illicit activity as they have access to a more complete view and understanding of the real estate transaction and of

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F I N C E N A D V I S O R Y

7

those involved in the transaction. For example, real estate brokers may have greater insight as to the potential purpose for which a property is being purchased or the possible origin of a purchaser’s funds. When reporting suspicious activity, persons involved in real estate closings and settlements should note that they can benefit from protection from civil liability.24

24. See 31 U.S.C. § 5318(g)(3)(A). Persons filing SARs should also note that FinCEN protects the confidentiality of such filings.

Real estate brokers, escrow agents, title insurers, and other real estate professionals can identify potential suspicious transactions by reviewing available facts and circumstances. Real estate professionals may determine a transaction is suspicious after evaluating whether the real estate transaction:

• Lacks economic sense or has no apparent lawful business purpose. Suspicious real estate transactions may include purchases/sales that generate little to no revenue or are conducted with no regard to high fees or monetary penalties;

• Is used to purchase real estate with no regard for the property’s condition, location, assessed value, or sale price;

• Involves funding that far exceeds the purchaser’s wealth, comes from an unknown origin, or is from or goes to unrelated individuals or companies; or

• Is deliberately conducted in an irregular manner. Illicit actors may attempt to purchase property under an unrelated individual’s or company’s name or ask for records (e.g., assessed value) to be altered.

Filing Suspicious Activity Reports (SARs)To report suspicious transactions, financial institutions—including persons involved in real estate closings and settlements—should electronically submit a SAR through FinCEN’s BSA E-Filing System. Additional information on how to complete and file a SAR is available at FinCEN’s public website here.

When filing a mandatory or voluntary SAR involving a real estate transaction, financial institutions should provide complete and accurate information, including relevant facts in appropriate SAR fields, and information about the real estate transaction and the circumstances and reasons why such transaction may be suspicious in the narrative section of the SAR.

FinCEN also requests that financial institutions reference this advisory and include the key term

“ADVISORY REAL ESTATE”in the SAR narrative and in SAR field 33(z) (Money Laundering-Other) to indicate a connection between the suspicious activity being reported and real estate property.

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GEOGRAPHIC TARGETING ORDER

The Director of the Financial Crimes Enforcement Network (“FinCEN”), U.S. Department of the Treasury, hereby issues a Geographic Targeting Order (“Order”) requiring title insurance company to collect and report information about the persons involved in certain residential real estate transactions, as further described in this Order. I. AUTHORITY The Director of FinCEN may issue an order that imposes certain additional recordkeeping and reporting requirements on one or more domestic financial institutions or nonfinancial trades or businesses in a geographic area. See 31 U.S.C. § 5326(a); 31 CFR § 1010.370; and Treasury Order 180-01. Pursuant to this authority, the Director of FinCEN hereby finds that reasonable grounds exist for concluding that the additional recordkeeping and reporting requirements described below are necessary to carry out the purposes of the Bank Secrecy Act or prevent evasions thereof.1 II. ADDITIONAL RECORDKEEPING AND REPORTING REQUIREMENTS

A. Business and Transactions Covered by this Order

1. For purposes of this Order, the “Covered Business” means title insurance company and any of its subsidiaries and agents.

2. For purposes of this Order, a “Covered Transaction” means a transaction in which:

i. A Legal Entity (as defined in Section III.A of this Order); ii. Purchases residential real property:

1. For a total purchase price of $500,000 or more in the Texas county of Bexar;

2. For a total purchase price of $1,000,000 or more in the Florida county of

Miami-Dade, Broward, or Palm Beach;

3. For a total purchase price of $1,500,000 or more in the Borough of Brooklyn, Queens, Bronx, or Staten Island in New York City, New York;

1 The Bank Secrecy Act is codified at 12 U.S.C. §§ 1829b, 1951-1959 and 31 U.S.C. §§ 5311-5314, 5316-5332. Regulations implementing the Bank Secrecy Act appear at 31 CFR Chapter X.

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4. For a total purchase price of $2,000,000 or more in the California county of San Diego, Los Angeles, San Francisco, San Mateo, or Santa Clara;

5. For a total purchase price of $3,000,000 or more in the Borough of Manhattan

in New York City, New York; or

6. For a total purchase price of $3,000,000 or more in the City and County of Honolulu in Hawaii; and

iii. Such purchase is made without a bank loan or other similar form of external

financing; and

iv. Such purchase is made, at least in part, using currency or a cashier’s check, a certified check, a traveler’s check, a personal check, a business check, or a money order in any form, or a funds transfer.

B. Reports Required to be Filed by the Covered Business

1. If the Covered Business is involved in a Covered Transaction, then the Covered

Business shall report the Covered Transaction to FinCEN by filing a FinCEN Form 8300 within 30 days of the closing of the Covered Transaction. Each FinCEN Form 8300 filed pursuant to this Order must be: (i) completed in accordance with the terms of this Order and the FinCEN Form 8300 instructions (when such terms conflict, the terms of this Order apply), and (ii) e-filed through the Bank Secrecy Act E-filing system.2

2. A Form 8300 filed pursuant to this Order shall contain the following information about

the Covered Transaction:

i. Part I shall contain information about the identity of the individual primarily responsible for representing the Purchaser (as defined in Section III.A of this Order). The Covered Business must obtain and record a copy of this individual’s driver’s license, passport, or other similar identifying documentation. A description of such documentation must be provided in Field 14 of the form.

ii. Part II shall contain information about the identity of the Purchaser. The Covered Business should select Field 15 on the FinCEN Form 8300, which will enable reporting of multiple parties under Part II of the form.

iii. Part II shall also contain information about the identity of the Beneficial Owner(s)

(as defined in Section III.A of this Order) of the Purchaser. The Covered Business must obtain and record a copy of the Beneficial Owner’s driver’s license, passport,

2 For more information on E-filing, go to this Website: http://bsaefiling.fincen.treas.gov/main.html and do the following: (a) review “Getting Started”; (b) fill out a Supervisory User Application Form; (c) assign the supervisory user to represent your business; (d) obtain a digital certificate; and (e) register on the system.

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or other similar identifying documentation. A description of such documentation must be provided in Field 27 of the form.

iv. Part III shall contain information about the Covered Transaction as follows:

1. Field 28: Date of closing of the Covered Transaction. 2. Field 29: Total amount transferred using currency or a cashier’s check, a

certified check, a personal check, a business check, or a money order in any form.

3. Field 31: Total purchase price of the Covered Transaction. 4. Field 34: Address of real property involved in the Covered Transaction.

v. Part IV shall contain information about the Covered Business.

vi. The Comments section to the Form 8300 shall contain the following information:

1. The term “REGTO” as a unique identifier for this Order. 2. If the purchaser involved in the Covered Transaction is a limited liability

company, then the Covered Business must provide the name, address, and taxpayer identification number of all its members.

3. If a Form 8300 is being filed by an agent of the Covered Business named in this Order, then the agent shall include the name of such Covered Business.

III. GENERAL PROVISIONS

A. Additional Definitions

1. For purposes of this Order:

i. “Beneficial Owner” means each individual who, directly or indirectly, owns 25% or more of the equity interests of the Purchaser.

ii. “Legal Entity” means a corporation, limited liability company, partnership or other

similar business entity, whether formed under the laws of a state or of the United States or a foreign jurisdiction.

iii. “Purchaser” means the Legal Entity that is purchasing residential real property as

part of a Covered Transaction.

2. All terms used but not otherwise defined herein have the meaning set forth in Chapter X of Title 31 of the United States Code of Federal Regulations.

B. Order Period

The terms of this Order are effective beginning on September 22, 2017 and ending on March 20, 2018 (except as otherwise provided in Section III.C of this Order).

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C. Retention of Records

The Covered Business must: (1) retain all records relating to compliance with this Order for a period of five years from the last day that this Order is effective (including any renewals of this Order); (2) store such records in a manner accessible within a reasonable period of time; and (3) make such records available to FinCEN or any other appropriate law enforcement or regulatory agency, upon request.

D. No Effect on Other Provisions of the Bank Secrecy Act

Nothing in this Order modifies or otherwise affects any provision of the regulations implementing the Bank Secrecy Act to the extent not expressly stated herein.

E. Compliance The Covered Business must supervise, and is responsible for, compliance by each of its officers, directors, employees, and agents with the terms of this Order. The Covered Business must transmit this Order to each of its agents. The Covered Business must also transmit this Order to its Chief Executive Officer or other similarly acting manager.

F. Penalties for Noncompliance The Covered Business and any of its officers, directors, employees, and agents may be liable, without limitation, for civil or criminal penalties for violating any of the terms of this Order.

G. Validity of Order

Any judicial determination that any provision of this Order is invalid does not affect the validity of any other provision of this Order, and each other provision must thereafter remain in full force and effect. A copy of this Order carries the full force and effect of an original signed Order.

H. Paperwork Reduction Act

The collection of information subject to the Paperwork Reduction Act contained in this Order has been approved by the Office of Management and Budget (“OMB”) and assigned OMB Control Number 1506-0056.

Oct 2017 35

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Issued Date:Subject:

Advisory Information

FinCEN Advisory FIN-2017-A006-508 Compliant.pdf 359.6 KB

FIN-2017-A006September 20, 2017

Advisory to Financial Institutions on Widespread Political Corruption in Venezuela

Reports from financial institutions are criticalto stopping, deterring, and preventing the

proceeds tied to suspected Venezuelan publiccorruption from moving through the U.S.

financial system.The Financial Crimes Enforcement Network (FinCEN) is issuing this advisory to alert financial institutions ofwidespread public corruption in Venezuela and the methods Venezuelan senior political figures (and theirassociates and front persons) may use to move and hide corruption proceeds.[1] This advisory also providesfinancial red flags to assist in identifying and reporting to FinCEN suspicious activity that may be indicative ofVenezuelan corruption, including the abuse of Venezuelan government contracts, wire transfers from shellcorporations, and real estate purchases in the South Florida and Houston, Texas regions.

This advisory should be shared with:

• Private Banking Units

• Chief Risk Officers

• Chief Compliance Officers

• AML/BSA Analysts

• Sanctions Analysts

• Legal Departments

Awareness of money laundering schemes used by corrupt Venezuelan officials may help financial institutions

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(1) differentiate between illicit and legitimate transactions, and (2) identify and report transactions involvingsuspected corruption proceeds being held or moved by their customers, including through their private andcorrespondent banking relationships.

Consistent with a risk-based approach, however, financial institutions should be aware that normal businessand other transactions involving Venezuelan nationals and businesses do not necessarily represent the samerisk as transactions and relationships identified as being connected to the Venezuelan government,Venezuelan officials, and Venezuelan state-owned enterprises (SOEs) involved in public corruption thatexhibit the red flags below or other similar indicia.

Public Corruption in VenezuelaVenezuela faces severe economic and political circumstances due to the rupture of democratic andconstitutional order by the government and its policy choices. Endemic corruption, such as that seen inVenezuela, can further damage its economic growth and stability. Such corruption, particularly related togovernment contracts and resources, can also deprive populations of their wealth; interfere with efforts topromote economic development; discourage private investment; and foster a climate where financial crimeand other forms of lawlessness can thrive.

In recent years, financial institutions have reported to FinCEN their suspicions regarding many transactionssuspected of being linked to Venezuelan public corruption, including government contracts. Based on thisreporting and other information, all Venezuelan government agencies and bodies, including SOEs, appearvulnerable to public corruption and money laundering. The Venezuelan government appears to use itscontrol over large parts of the economy to generate significant wealth for government officials and SOEexecutives, their families, and associates. In this regard, there is a high risk of corruption involvingVenezuelan government officials and employees at all levels, including those managing or working atVenezuelan SOEs.

Recent Sanctions Actions

On February 13, 2017, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC)designated Venezuelan Vice President Tareck El Aissami (El Aissami) for playing a significant role ininternational narcotics trafficking pursuant to the Foreign Narcotics Kingpin Designation Act. On the sameday, OFAC also designated his front man, Samark Lopez Bello, for materially assisting El Aissami and actingon his behalf.[2] Their designations disrupted their ability to launder illicit proceeds, and hundreds of millionsin assets associated with Lopez Bello have since been blocked. On March 8, 2015, the President of theUnited States issued Executive Order (E.O.) 13692 which blocks property and suspends entry of certainpersons contributing to the situation in Venezuela. E.O. 13692 authorizes the Secretary of the Treasury todesignate persons, inter alia, involved in public corruption by senior officials within the Government ofVenezuela or persons who have materially assisted, sponsored, or provided financial, material, ortechnological support for, or goods or services to or in support of, such designated persons. On August 25,2017, the President of the United States issued E.O. 13808 imposing additional sanctions prohibiting certaindebt, equity, and profit and dividend disbursement activities with the Government of Venezuela andVenezuelan state-owned oil company, Petroleos de Venezuela, S.A. (PDVSA).[3]

The OFAC designations increase the likelihood that other non-designated Venezuelan senior political figuresmay seek to protect their assets, including those that are likely to be associated with political corruption, toavoid potential future blocking actions.

Venezuelan Government Corruption – Red FlagsOct 2017 37

Venezuelan Government Agencies and State-Owned Enterprises

Transactions involving Venezuelan government agencies and SOEs, particularly those involving governmentcontracts, can potentially be used as vehicles to move, launder, and conceal embezzled corruption proceeds. SOEs (as well as their officials) may try to use the U.S. financial system to move or hide proceeds of publiccorruption. Among the SOEs referenced in OFAC’s recent designations related to Venezuela are theNational Center for Foreign Commerce (CENCOEX), Suministros Venezolanos Industriales, CA (SUVINCA),the Foreign Trade Bank (BANCOEX), the National Telephone Company (CANTV), the National ElectricCorporation (CORPELEC), Venezuelan Economic and Social Bank (BANDES), and similar state-controlledentities. As law enforcement and financial institutions increase scrutiny of transactions involving VenezuelanSOEs, corrupt officials may try to channel illicit proceeds through lesser-known or newly-created SOEs oraffiliated enterprises.

The Role of Currency Controls

Currency controls in Venezuela limit the supply of U.S. dollars for most economic activities, which encouragesthe demand for foreign currency and smuggled goods in the parallel market. Although illegal, Venezuela’sparallel market is a highly profitable business for those with regime connections that enable them to accessinexpensive dollars and goods.[4] This parallel market relies upon unregulated brokers, whose clientsoften include criminals who integrate illicit proceeds into the legal economy. Venezuelan officials who receivepreferential access to U.S. dollars at the more favorable, official exchange rate, also exploit the multi-tierexchange rate system for profit.

The red flags noted below, which are derived from information available to FinCEN (including suspiciousactivity reporting), published information associated with OFAC designations, and other public reporting, mayhelp financial institutions identify suspected schemes by corrupt officials, their family members, andassociates to channel corruption proceeds, often involving government contracts or resources, throughtransactions involving Venezuelan SOEs and subsidiaries:

Government Contracts: Corrupt officials may use contracts with the Venezuelan government as vehicles toembezzle funds and receive bribes. In this regard, some financial red flags can include:

Transactions involving Venezuelan government contracts that are directed to personal accounts.

Transactions involving Venezuelan government contracts that are directed to companies that operate in anunrelated line of business (e.g., payments for construction projects directed to textile merchants).

Transactions involving Venezuelan government contracts that originate with, or are directed to, entities thatare shell corporations, general “trading companies,” or companies that lack a general business purpose.

Members of the regime and their allies direct government contracts to their associated companies to importgoods and obtain approval from the Venezuelan Corporation of Foreign Trade (CORPOVEX) for foreign-domiciled companies—often shell companies—to participate in the import activity.[5] Both the importers andthe receiving government officials often divert a portion of the merchandise to the black market, where profitsare higher.

Documentation corroborating transactions involving Venezuelan government contracts (e.g., invoices) thatinclude charges at substantially higher prices than market rates or that include overly simple documentationor lack traditional details (e.g., valuations for goods and services). Venezuelan officials who receivepreferential access to U.S. dollars at the more favorable, official exchange rate may exploit this multi-tierexchange rate system for profit.

Payments involving Venezuelan government contracts that originate from non-official Venezuelanaccounts, particularly accounts located in jurisdictions outside of Venezuela (e.g., Panama or the Caribbean).

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Export businesses in South Florida that specialize in sending goods to Venezuela are particularly vulnerableto trade-based money laundering (TBML) schemes. These include businesses that send heavy equipment,auto parts, and electronics (cell phones and other appliances) from Florida to Venezuela.

Payments involving Venezuelan government contracts that originate from third parties that are not officialVenezuelan government entities (e.g., shell companies).

Public reports indicate that the use of third parties, or brokers, to deal with government entities is common inVenezuela and is a significant source of risk. Brokers, particularly when colluding with corrupt governmentofficials, can facilitate overseas transactions in a way that circumvents currency controls and maskspayments from SOEs.

Cash deposits instead of wire transfers in the accounts of companies with Venezuelan governmentcontracts.

In addition, other financial red flags observed in transactions suspected of involving Venezuelan governmentcorruption include:

Transactions for the purchase of real estate—primarily in the South Florida and Houston, Texas regions—involving current or former Venezuelan government officials, family members or associates that is notcommensurate with their official salaries.

Corrupt Venezuelan government officials seeking to abuse a U.S. or foreign bank’s wealth managementunits by using complex financial transactions to move and hide corruption proceeds.

Reminder of Regulatory Obligations for U.S. FinancialInstitutions

FinCEN is providing the information in this advisory to assist U.S. financial institutions in meeting their duediligence obligations that may apply to activity involving certain Venezuelan persons. To best meet theseobligations, financial institutions should generally be aware of public reports of high-level corruptionassociated with senior Venezuelan foreign political figures, their family members, associates, or associatedlegal entities or arrangements. Financial institutions should assess the risk for laundering of the proceeds ofpublic corruption associated with specific particular customers and transactions. Financial institutions alsoshould be aware that OFAC has designated (and provided related guidance on) several Venezuelan personsand entities located in or related to Venezuela.[6]

Consistent with existing regulatory obligations, financial institutions should take reasonable, risk-based stepsto identify and limit any exposure they may have to funds and other assets associated with Venezuelan publiccorruption. Such reasonable steps should not, however, put into question a financial institution’s ability tomaintain or continue otherwise appropriate relationships with customers or other financial institutions, andshould not be used as the basis to engage in wholesale or indiscriminate de-risking of any class of customersor financial institutions. FinCEN also reminds financial institutions of previous interagency guidance onproviding services to foreign embassies, consulates, and missions.[7]

Enhanced Due Diligence Obligations for Private Bank Accounts

Under Section 312 of the USA PATRIOT Act (31 U.S.C. § 5318(i)), U.S. financial institutions have regulatoryobligations to apply enhanced scrutiny to private banking accounts held by, or on behalf of, senior foreignpolitical figures and to monitor transactions that could potentially represent misappropriated or diverted stateassets, the proceeds of bribery or other illegal payments, or other public corruption proceeds.[8]

FinCEN’s regulations implementing Section 312 require a written due diligence program for private bankingOct 2017 39

accounts held for non-U.S. persons that is designed to detect and report any known or suspected moneylaundering or other suspicious activity.[9] Accordingly, covered financial institutions maintaining privatebanking accounts for senior foreign political figures are required to apply enhanced scrutiny of such accountsto detect and report transactions that may involve the proceeds of foreign corruption.[10]

General Obligations for Correspondent Account Due Diligence and Anti-Money Laundering (AML) Programs

U.S. financial institutions must comply with their general due diligence obligations under 31 CFR §1010.610(a) and their AML program requirements under 31 U.S.C. § 5318(h) and 31 CFR § 1010.210. Inaddition, as required under 31 CFR § 1010.610(a), covered financial institutions should ensure that their duediligence programs, which address correspondent accounts maintained for foreign financial institutions,include appropriate, specific, risk-based, and, where necessary, enhanced policies, procedures, and controlsthat are reasonably designed to detect and report known or suspected money laundering activity conductedthrough or involving any correspondent account established, maintained, administered, or managed in theUnited States.

Suspicious Activity Reporting

A financial institution is required to file a suspicious activity report (SAR) if it knows, suspects, or has reasonto suspect a transaction conducted or attempted by, at, or through the financial institution involves fundsderived from illegal activity, or attempts to disguise funds derived from illegal activity; is designed to evaderegulations promulgated under the Bank Secrecy Act (BSA); lacks a business or apparent lawful purpose; orinvolves the use of the financial institution to facilitate criminal activity, including foreign corruption.

Additional SAR Reporting Guidance on Senior Foreign Political Figures

In April 2008, FinCEN issued Guidance to assist financial institutions with reporting suspicious activityregarding proceeds of foreign corruption.[12] A related FinCEN SAR Activity Review, which focused onforeign political corruption, also discusses indicators of transactions that may be related to proceeds offoreign corruption.[13] Financial institutions may find this Guidance and the SAR Activity Review useful inassisting with suspicious activity monitoring and due diligence requirements related to senior foreign politicalfigures.

SAR Filing Instructions

When filing a SAR, financial institutions should provide all pertinent available information in the SAR form andnarrative. FinCEN further requests that financial institutions select SAR field 35(l) (SuspectedPublic/Private Corruption (Foreign)) and reference this advisory by including the key term:

“Venezuelan Corruption”in the SAR narrative and in SAR field 35(z) (Other Suspicious Activity-Other) to indicate a connectionbetween the suspicious activity being reported and the persons and activities highlighted in this advisory.

SAR reporting, in conjunction with effective implementation of due diligence requirements and OFACobligations by financial institutions, has been crucial to identifying money laundering and other financialcrimes associated with foreign and domestic political corruption. SAR reporting is consistently beneficial andcritical to FinCEN and U.S. law enforcement analytical and investigative efforts, OFAC designation efforts,and the overall security and stability of the U.S. financial system.[14]

For Further Information

Additional questions or comments regarding the contents of this advisory should be addressed to the FinCENResource Center at FRC@fincen.gov . Financial institutions wanting to report suspicious transactions

[11]

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that may potentially relate to terrorist activity should call the Financial Institutions Toll-Free Hotline at(866) 556-3974 (7 days a week, 24 hours a day). The purpose of the hotline is to expedite the delivery ofthis information to law enforcement. Financial institutions should immediately report any imminent threat tolocal-area law enforcement officials.

###

FinCEN’s mission is to safeguard the financial system from illicit use and combat money laundering andpromote national security through the collection, analysis, and dissemination of financial intelligence and

strategic use of financial authorities.

[1] “The term ‘senior foreign political figure’ means a current or former senior official in the executive, legislative, administrative,military or judicial branches of a foreign government (whether elected or not); a senior official of a major foreign political party; ora senior executive of a foreign government-owned commercial enterprise; a corporation, business, or other entity that has beenformed by, or for the benefit of, any such individual; an immediate family members of any such individual; and a person who iswidely and publicly known (or is actually known by the relevant covered financial institution) to be a close associate of suchindividual. For the purposes of this definition, ‘senior official or executive’ means an individual with substantial authority overpolicy, operations, or the use of government-owned resources and ‘immediate family member’ means spouses, parents,siblings, children and a spouse’s parents and siblings.” 31 CFR § 1010.605(p). See also 31 CFR § 1010.620.

[2] See “Treasury Sanctions Prominent Venezuelan Drug Trafficker Tareck El Aissami and His Primary FrontmanSamark LopezBello ” (February 13, 2017).

[3] See https://www.whitehouse.gov/the-press-office/2017/08/25/presidential-executive-order-imposing-sanctions-respect-situation .

[4] See Banco Central de Venezuela. Law against Illicit Trades, Chapter III, Art.9.

[5] For more information on CORPOVEX, see http://www.corpovex.gob.ve/quienes-somos-2/ .

[6] See https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20170518.aspx . For more informationon OFAC’s sanctions related to Venezuela, see https://www.treasury.gov/resource-center/sanctions/Programs/Pages/venezuela.aspx .

[7] See Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Financial CrimesEnforcement Network, National Credit Union Administration, Office of the Comptroller of the Currency, and Office of ThriftSupervision, “Interagency Advisory: Guidance on Accepting Accounts from Foreign Embassies,Consulates, and Missions,”March 24, 2011 and Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, FinancialCrimes Enforcement Network, National Credit Union Administration, Office of the Comptroller of the Currency, and Office ofThrift Supervision, “Interagency Advisory: Guidance onAccepting Accounts from Foreign Governments, Foreign Embassies,and Foreign Political Figures,” June 15, 2004.

[8] For FinCEN’s implementing regulations see 31 CFR § 1010.620 and 1010.210 as further proscribed in 31 CFR § 1020.210,1021.210, 1022.210, 1023.210, 1024.210, 1025.210, 1026.210, 1027.210, 1028.210, 1029.210, and 1030.210

[9] See 31 CFR § 1010.620(a-b). The definition of “covered financial institution” is found in 31 CFR § 1010.605(e). Thedefinition of “private banking account” is found in 31 CFR § 1010.605(m). The definition for the term “non-U.S. person” is foundin 31 CFR § 1010.605(h).

[10] 31 CFR § 1010.620(c).

[11] See generally 31 CFR § 1020.320, 1021.320, 1022.320, 1023.320, 1024.320, 1025.320, 1026.320, 1029.320, and1030.320.

Oct 2017 41

[12] See FinCEN Guidance FIN-2008-G005: “Guidance to Financial Institutions on Filing Suspicious Activity ReportsRegardingthe Proceeds of Foreign Corruption,” (April 2008).

[13] See Bank Secrecy Act Advisory Group “Focus: Foreign Corruption,” SAR Activity Review, Issue 19, May 2011, particularlypages 29-69.

[14] For example case studies, see SAR Activity Review, Issue 19, beginning on page 25 and Law Enforcement CaseExamples.

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Underserved Middle-Income

Nonmetropolitan Tracts

COUNTY NAME STATE NAME POVERTY UNEMPLOYMENTPOPULATION

LOSSREMOTE RURAL DISTRESSED

UNDER-SERVED

STATE CODE

COUNTY CODE

TRACT CODE

BARBOUR AL X 01 005 9501.00BARBOUR AL X X 01 005 9502.00BARBOUR AL X X X 01 005 9503.00BARBOUR AL X X X 01 005 9504.00BARBOUR AL X X X 01 005 9505.00BARBOUR AL X 01 005 9506.00BARBOUR AL X X X 01 005 9508.00BARBOUR AL X X X 01 005 9509.00BULLOCK AL X X 01 011 9521.00BULLOCK AL X X 01 011 9522.00BULLOCK AL X X 01 011 9525.00BUTLER AL X 01 013 9527.00BUTLER AL X 01 013 9529.00BUTLER AL X 01 013 9530.00BUTLER AL X X 01 013 9532.00BUTLER AL X X 01 013 9533.00BUTLER AL X 01 013 9534.00BUTLER AL X X 01 013 9535.00CHAMBERS AL X X 01 017 9538.00CHAMBERS AL X X 01 017 9539.00CHAMBERS AL X X 01 017 9540.00CHAMBERS AL X X 01 017 9542.00CHAMBERS AL X 01 017 9543.00CHAMBERS AL X 01 017 9545.00CHAMBERS AL X X 01 017 9546.00CHAMBERS AL X X 01 017 9547.00CHOCTAW AL X X X X X X 01 023 9568.00CHOCTAW AL X X X X X X 01 023 9569.00CHOCTAW AL X X 01 023 9570.00CLARKE AL X X X 01 025 9575.00

Distressed Middle-Income Nonmetropolitan Tracts

Previous Year Designation

Oct 2017 44

Underserved Middle-Income

Nonmetropolitan Tracts

COUNTY NAME STATE NAME POVERTY UNEMPLOYMENTPOPULATION

LOSSREMOTE RURAL DISTRESSED

UNDER-SERVED

STATE CODE

COUNTY CODE

TRACT CODE

Distressed Middle-Income Nonmetropolitan Tracts

Previous Year Designation

SAINT CROIX ISLAND VIRGIN ISLANDS X X X 78 010 9713.00SAINT CROIX ISLAND VIRGIN ISLANDS X X X 78 010 9714.00SAINT CROIX ISLAND VIRGIN ISLANDS X X X 78 010 9715.00SAINT THOMAS ISLAND VIRGIN ISLANDS X 78 030 9601.00SAINT THOMAS ISLAND VIRGIN ISLANDS X 78 030 9602.00SAINT THOMAS ISLAND VIRGIN ISLANDS X 78 030 9603.00SAINT THOMAS ISLAND VIRGIN ISLANDS X 78 030 9606.00SAINT THOMAS ISLAND VIRGIN ISLANDS X 78 030 9607.00SAINT THOMAS ISLAND VIRGIN ISLANDS X 78 030 9608.00SAINT THOMAS ISLAND VIRGIN ISLANDS X 78 030 9609.00

Oct 2017 45

1700 G Street NW, Washington, DC 20552

July 7, 2017

Executive Summary of the 2017 TILA-RESPA Rule On July 7, 2017, the Consumer Financial Protection Bureau (Bureau) issued a final rule (2017

TILA-RESPA Rule or 2017 Rule) amending and clarifying certain mortgage disclosure provisions

implemented in Regulation Z.

The 2017 TILA-RESPA Rule is effective 60 days after its publication in the Federal Register.

However, compliance with the 2017 Rule is not mandatory on the effective date. Generally,

compliance with the 2017 Rule is only mandatory for transactions for which a creditor or mortgage

broker receives an application on or after October 1, 2018. However, as discussed below, the

escrow closing notice and partial payment disclosure requirements apply starting October 1, 2018

without regard to when the creditor or mortgage broker receives the application.

The 2017 TILA-RESPA Rule includes an optional compliance period, which begins on the 2017

Rule’s effective date. Beginning on the 2017 Rule’s effective date and for transactions for which a

creditor or mortgage broker receives an application prior to October 1, 2018, a person can comply

with the 2017 Rule, but is not required to do so. Generally, during this optional compliance

period, a person may comply with the changes set forth in the 2017 Rule all at one time or phase in

the changes over time (even within the course of a transaction). Notwithstanding this flexibility, a

person cannot phase in the 2017 Rule in a way that would violate provisions of Regulation Z that

are not being changed.1 Additionally, if a creditor or mortgage broker receives an application prior

1 For example, during the optional compliance period, a creditor cannot provide a Good Faith Estimate followed by a Closing Disclosure for a transaction secured by a cooperative unit that is not considered to be real property under

Oct 2017 46

to October 1, 2018, optional compliance continues to apply to that transaction after October 1,

2018 (except as noted regarding the escrow closing notice and partial payment disclosure).

Concurrently with the issuance of the 2017 TILA-RESPA Rule, the Bureau is issuing a notice of

proposed rule-making (NPRM) regarding when a creditor may use a Closing Disclosure, instead of

a Loan Estimate, to determine if an estimated closing cost was disclosed in good faith and within

tolerance. The 2017 Rule does not make changes or clarifications related to this issue. Comments

on the NPRM are due 60 days after the NPRM is published in the Federal Register.

This executive summary provides an overview of the 2017 TILA-RESPA Rule. To assist industry

with implementation of the 2017 Rule, the Bureau will provide additional implementation

resources. It will also update the TILA-RESPA Integrated Disclosure Rule Small Entity

Compliance Guide and Guide to the Loan Estimate and Closing Disclosure Forms. However, the

executive summary and the other implementation resources are not substitutes for reviewing the

2017 Rule. The 2017 Rule is the definitive source regarding its requirements.

Partial Payment Disclosures and Escrow Closing Notices

Regulation Z requires a creditor or servicer to provide a consumer with an escrow closing notice

before an escrow account subject to 12 CFR 1026.20(e)2 is canceled. It also requires certain

persons who become the owner of an existing closed-end consumer mortgage loan (other than a

reverse mortgage) to notify the consumer of the partial payment policy3 applicable to the mortgage

loan. These obligations generally arise after consummation, and these notices are sometimes

referred to as post-consummation notices.

applicable state law. The creditor would violate § 1026.38(i), which requires that information that was disclosed on the Loan Estimate be included on the Closing Disclosure.

2 Generally, 12 CFR 1026.20(e) requires an escrow closing notice for an escrow account established in connection with a closed-end consumer mortgage loan secured by a first lien on real property or a dwelling (other than a reverse mortgage), unless the escrow account was established solely in connection with a consumer’s default or delinquency on the underlying loan or the underlying loan is terminated, such as by repayment.

3 Persons required to provide mortgage transfer notices when the ownership of a mortgage loan is being transferred must include in the notice information related to the partial payment policy that will apply to the mortgage loan. See 12 CFR 1026.39(d).

Oct 2017 47

The 2017 TILA-RESPA Rule addresses the applicability of these post-consummation notice

requirements. Specifically, it provides that after October 1, 2018, the applicability of these

requirements will not be dependent on when the application for the mortgage loan was received.

Until October 1, 2018 (i.e., the 2017 Rule’s mandatory compliance date), a creditor or servicer can

either provide the escrow closing notice for covered escrow accounts established in connection

with a mortgage loan for which an application was received on or after October 3, 2015 or provide

the notice in connection with all covered escrow accounts without regard to when the mortgage

loan application was received. Similarly, a covered person has the option to provide the partial

payment disclosure for closed-end consumer mortgage loans for which an application was received

on or after October 3, 2015 or to provide the disclosure for all such loans without regard to when

the application was received. However, starting October 1, 2018, the escrow closing notice and

partial payment disclosure requirements apply without regard to when the application for the

covered loan was received.

Loans Secured by Cooperatives

Currently, Regulation Z requires a creditor to provide the integrated disclosures for a loan secured

by a cooperative unit if cooperative units are classified as real property under applicable state law.

It does not require a creditor to provide the integrated disclosures for such loans if cooperative

units are classified as personal property under applicable state law. The 2017 TILA-RESPA Rule

creates a uniform rule regarding such loans, and requires creditors to provide integrated

disclosures for a closed-end consumer loan (other than a reverse mortgage) secured by a

cooperative unit regardless of whether state law classifies cooperative units as real property.

Loans to Certain Trusts

The 2017 TILA-RESPA Rule revises the commentary to clarify that, for purposes of Regulation Z’s

definition of “consumer,” credit extended to certain trusts established for tax or estate planning

purposes is credit extended to a natural person. The preamble to the 2017 TILA-RESPA Rule

discusses providing the disclosures in these situations.

Partial Exemption for Certain Housing Assistance Loans

Regulation Z provides an exemption from the TILA-RESPA integrated disclosure requirements for

low-cost, non-interest bearing, subordinate lien housing assistance loans that satisfy six criteria.

Similarly, Regulation X provides an exemption from certain RESPA disclosure requirements for

Oct 2017 48

loans that satisfy the six criteria set forth in Regulation Z. The 2017 TILA-RESPA Rule clarifies

and changes two of the six criteria.

The 2017 TILA-RESPA Rule revises the costs that may be payable by the consumer without loss of

eligibility for the partial exemption. Specifically, it provides that:

1. Transfer taxes, in addition to recording, application, and housing counseling fees, may be payable by the consumer at consummation without losing eligibility for the partial exemption; and

2. Recording fees and transfer taxes are excluded from the 1-percent cap on total costs payable by the consumer at consummation.

The 2017 TILA-RESPA Rule also revises the requirements regarding the disclosures that must be

provided to meet a criterion for the partial exemption. Specifically, it allows the creditor to

provide the integrated disclosures as an alternative to providing a disclosure of the cost of credit

under 12 CFR 1026.18. Disclosures must comply with all Regulation Z requirements pertaining to

those disclosures. Assuming the other criteria for the partial exemption are satisfied, a creditor

may provide either a compliant disclosure of the cost of credit under 12 CFR 1026.18 or a

compliant Loan Estimate and Closing Disclosure, and does not need to provide the special

information booklet, Good Faith Estimate, or HUD-1 settlement statement.

Construction Loans

The 2017 TILA-RESPA Rule amends and clarifies several disclosure provisions related to

construction loans. Among other things, the 2017 Rule does the following with regard to

construction loans:

1. Provides that when disclosing a construction-permanent loan as two separate transactions, a creditor must provide a Loan Estimate for a particular phase within 3 business days of receiving an application for that phase (i.e., the creditor must provide the Loan Estimate for the construction phase within 3 business days of receiving the application for the construction phase and the Loan Estimate for the permanent phase within 3 business days of receiving the application for the permanent phase). If a creditor receives a single application for both phases but discloses them separately, it provides a Loan Estimate for the construction phase and a Loan Estimate for permanent phase within 3 business days of receipt of such application.

Oct 2017 49

2. Provides that, if a creditor discloses a construction-permanent loan as two separate transactions, the creditor must allocate to the construction phase amounts for finance charges and points and fees4 that would not be imposed but for the construction financing, and that other amounts for finance charges and points and fees must be allocated to the permanent phase. Fees and charges that are not finance charges or points and fees may be allocated between the construction phase and permanent phase in any manner that the creditor chooses.

3. Provides that construction inspection and handling charges collected before or at consummation are disclosed in the Loan Costs table, and that such costs collected after consummation are disclosed in a separate addendum. The 2017 Rule includes additional information regarding disclosure of these charges and the applicability of the good faith standard depending on when the charges are collected.

4. Provides that, in transactions without a seller, the appraised value or estimated value disclosed on the Loan Estimate must be based on the best information reasonably available and may, at the creditor’s option, include the estimated value of the anticipated improvements to the property. However, the value disclosed on the Closing Disclosure in transactions without a seller, must include the value of the property used to determine the approval of the loan, including the value of improvements to be made on the property if the improvements’ value was used to approve the loan.

5. Provides that, if a construction-permanent loan is disclosed as a single transaction, the Loan Term is the combined term of both phases (i.e., construction phase of 12 months and permanent phase of 30 years is disclosed as 31 years). However, if a construction-permanent loan is disclosed as two transactions, the Loan Term for the permanent phase begins on the date that interest for the permanent phase’s periodic payments begins to accrue.

6. Provides how to complete the Product disclosure as well as disclosure of interest-only features and balloon payments for construction-only loans and construction-permanent loans.

7. Provides that, if the loan contract indicates the creditor may modify the interest rate when the construction phase converts to the permanent phase and such modifications may

4 See 12 CFR 1026.4 for a description of the finance charges and 12 CFR 1026.32(b)(1) for a description of points and fees.

Oct 2017 50

increase the payment, the creditor provides the adjustable rate mortgage (ARM) disclosures under 12 CFR 1026.20(c) if the loan is secured by the consumer’s principal residence, but is not required to provide the initial ARM disclosures under 12 CFR 1026.20(d), for the permanent phase of a construction-permanent loan.

8. Addresses certain interest rate disclosures for construction-only and construction-permanent loans, including in situations where certain interest rates are unknown.

9. Addresses disclosure of the answer to “Can this amount increase after closing?” for construction loans and construction-permanent loans where the amounts and timing of advances are unknown (i.e., appendix D is used to calculate the schedule of payments).

10. Addresses disclosure of the Projected Payments table, including ranges of payments, for construction-only loans and construction-permanent loans.

11. Addresses disclosure of mortgage insurance and escrow payments in the Projected Payments table when only the permanent phase of a construction-permanent loan requires escrow and the loan is disclosed as a single transaction.

12. Provides that construction costs (i.e., the costs of the improvements) are factored into the Funds for Borrower calculation on the Loan Estimate or, if applicable, disclosed in the optional alternative Calculating Cash to Close table. On the Closing Disclosure, construction costs are disclosed in the Summaries of Transactions table and factored into the Funds for Borrower calculation or, if applicable, disclosed in the alternative Calculating Cash to Close table. The 2017 Rule also addresses situations where a creditor places a portion of the proceeds in a reserve or other account at consummation.

Simultaneous Subordinate Lien Loans

The 2017 TILA-RESPA Rule permits creditors to disclose simultaneous subordinate lien loans

used to finance home purchases on alternative disclosures5 if the entirety of the seller’s transaction

is disclosed on the Closing Disclosure for the first-lien mortgage loan. For example, the creditor

may leave the seller information, including the itemization of amounts due to seller, blank or may

use the optional alternative tables. Additionally, in a purchase transaction that involves

5 The 2017 TILA-RESPA Rule renames the alternative disclosures for transactions without a seller as alternative disclosures for transactions without a seller and simultaneous subordinate financing. These disclosures are also referred to in this summary as alternative disclosures or tables.

Oct 2017 51

simultaneous subordinate financing, a settlement agent may provide the seller with only the

seller’s Closing Disclosure for the first-lien transaction, if the first lien Closing Disclosure discloses

the entirety of the seller’s transaction. Alternatively, the settlement agent may provide the seller

with the seller’s Closing Disclosures for both the first-lien and simultaneous subordinate financing

transactions. Although the integrated disclosures for a purchase money subordinate lien loan may

omit seller information or use the alternative tables, the Purpose of such loan is disclosed as

“Purchase” as long as the loan is secured by the purchased property.

The 2017 TILA-RESPA Rule also provides that the proceeds from a simultaneous subordinate lien

loan must be included in the first lien mortgage loan’s Loan Estimate and Closing Disclosure. It

also clarifies how the proceeds are disclosed in the integrated disclosures for the first-lien loan as

well as how the proceeds may be disclosed in the integrated disclosures for the subordinate lien

mortgage loan itself.

Tolerances for Total of Payments Disclosure

The 2017 TILA-RESPA Rule includes tolerances for the total of payments disclosure, including

tolerances that apply for purposes of rescission. The tolerances for the total of payments

disclosure mirror the tolerances applicable to the finance charge. For example, the 2017 Rule

generally provides that the total of payments disclosure is considered accurate if it is overstated, or

if it is understated by no more than $100.

Good Faith and Revised Disclosures

The 2017 TILA-RESPA Rule amends and clarifies the application of the good faith standard under

12 CFR 1026.19(e)(3) and related tolerances for certain integrated disclosures. It also amends and

clarifies when revised Loan Estimates or Closing Disclosures are permitted or required. Among

other things, it provides that:

1. If a creditor fails to disclose a specific settlement service on the written list of providers or fails to provide the list, the 10 percent aggregate standard for determining good faith continues to apply to a required third-party, non-affiliate settlement service charge that otherwise complies with 12 CFR 1026.19(e)(3)(ii). However, good faith for such charges is determined under the zero tolerance standard if the creditor fails to permit the consumer to shop. Whether the creditor permits the consumer to shop is determined based on all the relevant facts and circumstances. The preamble to the 2017 TILA-RESPA Rule also notes

Oct 2017 52

that a creditor is not prohibited from issuing a revised written list of service providers for informational purposes.

2. The best information available standard applies to bona fide charges for third-party services if a consumer is permitted to shop for the service, as set forth in the 2017 Rule, and selects a provider not listed on the written list of settlement service providers provided to the consumer. This standard applies even if the charge is paid to the creditor’s affiliate.

3. A creditor can provide a revised Loan Estimate for informational purposes or, if applicable, to reset tolerances.6 In either situation, the Loan Estimate must be based on the best information reasonably available to the creditor.

4. A creditor may not provide a revised Loan Estimate after it issues a Closing Disclosure even if the interest rate is locked on or after the date the Closing Disclosure is provided to the consumer. If the rate is locked or if the rate changes after a Closing Disclosure is provided to the consumer, the creditor must provide a corrected Closing Disclosure at or before consummation to reflect the changes. If the change triggers a new 3-day review, the creditor must provide the corrected Closing Disclosure at least 3 business days before consummation.

5. Voluntarily extending the expiration date of a Loan Estimate, either orally or in writing, allows the consumer a longer period to indicate an intent to proceed. If the consumer indicates an intent to proceed within the extended period, the creditor must use the charges disclosed in the Loan Estimate when determining good faith and tolerances, unless Regulation Z otherwise allows the creditor to reset tolerances.

6. If a revised Loan Estimate is issued after the consumer indicates an intent to proceed, the expiration date and time for the disclosed costs are left blank on the revised Loan Estimate.

7. A post-consummation corrected Closing Disclosure is not required if the only changes that would be required to be disclosed in the corrected disclosure are changes to per-diem interest and any disclosures affected by the change in per-diem interest.

8. The creditor has options for disclosing a refund for a tolerance violation. The 2017 Rule also provides details for proper disclosure of principal reductions.

6 A creditor may, for example, reset tolerances if there is a changed circumstance under 12 CFR 1026.19(e)(3)(iv)(A) or (B), or if the consumer requests certain changes under 12 CFR 1026.19(e)(3)(iv)(C). The 2017 TILA-RESPA Rule also clarifies when estimated charges expire for purposes of good faith and determining if charges are within tolerance.

Oct 2017 53

Decimal Places and Rounding

The 2017 TILA-RESPA Rule amends and clarifies the disclosure requirements related to decimal

places and rounding. For example, on the Loan Estimate, per-diem interest amounts disclosed in

Prepaids and the monthly amounts disclosed in the Initial Escrow Payment at Closing are not

rounded to the nearest dollar. Percentage amounts required to be disclosed in the Loan Terms

table, in the Adjustable Interest Rate table, in the Adjustable Payments table, for the Total Interest

Percentage, and for Points in Origination Charges are disclosed by rounding the exact amount to

three decimal places. Any zeroes to the right of the decimal point are not included in the

disclosure (i.e., 1%, not 1.000%).

Calculating Cash to Close

The 2017 TILA-RESPA Rule amends and clarifies various calculations used to complete the

Calculating Cash to Close table. Among other things, it:

1. Provides that the loan amount used to calculate the Closing Costs Financed is the face amount of the note.

2. Provides that, in certain purchase transactions, the amount disclosed as the Down Payment/Funds from Borrower is the difference between the sales price and the sum of the loan amount and amounts for loans that the consumer is assuming or subject to which the consumer is taking title to the Property. The amounts for loans that the consumer is assuming or subject to which the consumer is taking title are amounts that will be disclosed on the Closing Disclosure in the Paid Already by or on Behalf of Borrower at Closing portion of the summary of the borrower’s transaction.

3. Provides that, in other purchase transactions, such as cash-back purchase transactions, simultaneous subordinate financing purchase transactions, and construction transactions, the amounts disclosed as the Down Payment/Funds from Borrower and Funds for Borrower are determined by subtracting the sum of the loan amount and amounts for loans that the consumer is assuming or subject to which the consumer is taking title to the Property from the total amount of all existing debt being satisfied in the transaction.

4. Provides details regarding when the integrated disclosures should include an amount for Down Payment/Funds from Borrower or Funds for Borrower.

5. Addresses the disclosure of Adjustments and Other Credits in the integrated disclosures.

Oct 2017 54

6. Provides that, on the Loan Estimate, specific seller credits may be disclosed as a lump sum in the Calculating Cash to Close table, or at the creditor’s option, may be disclosed by reducing the amount of the specific charge in the Loan Costs or Other Costs table.

7. Provides that a creditor uses the most recent Loan Estimate provided to the consumer when completing the Loan Estimate column of the Calculating Cash to Close table on the Closing Disclosure.

8. Addresses calculation of the Closing Costs Financed on the Closing Disclosure, including for simultaneous subordinate lien loans, construction loans, and construction-permanent loans.

9. Provides options for disclosing the statement that the consumer should see details regarding seller credits if there is a difference between the amount of seller credits disclosed on the Loan Estimate and those disclosed on the Closing Disclosure and the difference is not due to rounding.

10. Provides details regarding which amounts are included in the Adjustments and Other Credits section to prevent amounts from being counted twice in the Calculating Cash to Close table.

Other Disclosures in Loan Estimates and Written Lists of Providers

The 2017 TILA-RESPA Rule amends and clarifies several requirements related to the Loan

Estimate or written list of settlement service providers. Among other things, it provides that:

1. A creditor must identify the settlement services it requires the consumer to obtain but for which the creditor permits a consumer to shop. The creditor must provide sufficient information to allow the consumer to contact providers for the settlement services it requires but for which it permits a consumer to shop. The identified providers must correspond to the settlement services for which the consumer may shop.

2. Although a creditor is not required to use the model form H-27 (in appendix H of Regulation Z) for the written list of service providers, the proper use of the model form (including any permitted changes) provides a safe harbor.

3. If there is no seller and the creditor has performed its own estimate of the property value by the time the disclosure is provided to the consumer, the creditor must disclose its own estimate rather than disclose an estimate provided by the consumer.

Oct 2017 55

4. Payoffs of existing liens and unsecured debts are included in the Payoffs and Payments amount or factored into the Funds for Borrower or Adjustments and Other Credits amount in the Calculating Cash to Close table.

5. The Loan Amount disclosed in the Loan Estimate is the face amount of the note.

6. If multiple changes to periodic principal and interest payments may occur in a single year, the creditor combines the changes and discloses them as a single range of payments.

7. If accurate, a creditor can indicate that a portion of taxes, insurance and assessments will be paid with escrow funds.

8. Consistent with the terms of the legal obligation between the creditor and consumer, both specific and general lender credits are included in the disclosure labeled “Lender Credits” on the Loan Estimate.

9. The Total Interest Percentage includes prepaid interest that the consumer will pay, but does not include prepaid interest that someone other than the consumer will pay. Also, clarifies that prepaid interest that is disclosed as a negative number must be included as a negative value when calculating the Total Interest Percentage.

Other Disclosures in Closing Disclosures

The 2017 TILA-RESPA Rule amends and clarifies certain disclosure requirements relating to the

Closing Disclosure. Among other things, it does the following:

1. Provides details regarding the disbursement date to be used in the Closing Disclosure.

2. Provides that only the names and addresses of the persons to whom credit is offered or extended are disclosed at the top of the first page of the Closing Disclosure with the label “Borrower.”

3. Addresses the itemization requirement for disclosure of taxes and other government fees.

4. Provides that the creditor should disclose “$0.00” (not “$0”) for prepaid interest if, based on the best information available, the creditor does not believe it will collect prepaid interest.

5. Provides that a creditor may use the 12-month period beginning with the initial payment (instead of consummation) for certain escrow account disclosures under 12 CFR 1026.38(l)(7).

Oct 2017 56

6. Provides that a creditor may include ongoing payments for mortgage insurance in certain escrow account disclosures under 12 CFR 1026.38(l)(7).

7. Provides that a creditor may use an addendum if additional lines are needed to complete the escrow account disclosures under 12 CFR 1026.38(l)(7).

Sharing Disclosures with Various Parties During the Origination Process

The 2017 TILA-RESPA Rule clarifies that a creditor may provide separate disclosure forms to a consumer and seller if state law prohibits sharing information in the disclosure form as well as in any other situation where the creditor chooses to provide separate disclosures.

The 2017 Rule also clarifies the three methods that a creditor may use to make modifications to the Closing Disclosure in order to separate consumer and seller information. A creditor may:

1. Leave certain disclosures blank on the form provided to the consumer or seller (as

applicable);

2. Omit a table or label, as applicable, for the form provided to the consumer or seller (as applicable); or

3. Assist the settlement agent in providing (or provide when acting as a settlement agent) a modified version of the Closing Disclosure form to the seller. Form H-25(I) illustrates a modified version of the form that can be provided to the seller.

Technical Corrections and Clarifications

In addition to the changes discussed above, the 2017 TILA-RESPA Rule makes technical

corrections and minor changes and clarifications to wording throughout several provisions of

Regulation Z.

Oct 2017 57

1700 G Street NW, Washington, DC 20552

August 30, 2017

2017 TILA-RESPA Rule: DETAILED SUMMARY OF CHANGES AND CLARIFICATIONS

On July 7, 2017, the Consumer Financial Protection Bureau (Bureau) issued a final rule (2017 TILA-RESPA Rule or 2017 Rule) clarifying and amending certain mortgage disclosure provisions implemented in Regulation Z. This document summarizes most of the 2017 TILA-RESPA Rule’s clarifications and changes, and provides relevant citations. Use of this summary is not a substitute for reviewing the 2017 TILA-RESPA Rule. The 2017 TILA-RESPA Rule is the definitive source regarding its requirements. Additional implementation resources are available at www.consumerfinance.gov/policy-compliance/guidance/implementation-guidance/tila-respa-disclosure-rule/.

Effective date and mandatory compliance date

The 2017 TILA-RESPA Rule is effective and will be incorporated into the Code of Federal Regulations on October 10, 2017. However, compliance is not mandatory on the effective date (see Optional Compliance Period below in this section). Generally, compliance with the 2017 TILA-RESPA Rule is only mandatory for transactions for which a creditor or mortgage broker receives an application on or after October 1, 2018. However, the requirements for the Escrow Closing Notice and Partial Payment disclosures provided post-consummation apply starting October 1, 2018 without regard to when the creditor or mortgage broker receives the application.

Oct 2017 58

OPTIONAL COMPLIANCE PERIOD

The 2017 Rule includes an optional compliance period, which begins on October 10, 2017 and is for transactions for which a creditor or mortgage broker receives an application prior to October 1, 2018. During this period, early compliance with the 2017 Rule is allowed, but not required. Additionally, if a creditor or mortgage broker receives an application prior to October 1, 2018, optional compliance continues to apply to that transaction after October 1, 2018 (except as noted regarding the Escrow Closing Notice and Partial Payment disclosures). The below example illustrates the optionality provided during the optional compliance period. The preexisting TILA-RESPA Rule required creditors to disclose the Total Interest Percentage (TIP) and provides that the TIP is the total amount of interest that the consumer will pay over the life of the loan, expressed as a percentage of the principal of the loan. Among other things, the 2017 Rule states that, if prepaid interest in a particular transaction has a negative value, then that prepaid interest must be included as a negative value when calculating the TIP. During the optional compliance period, a creditor may either: Include negative prepaid interest into the TIP calculation as a negative value; or

Not include negative prepaid interest into the TIP calculation because the preexisting

regulation and commentary did not restrict how a creditor factors negative prepaid interest

into the TIP calculation.

During the optional compliance period (beginning on October 10, 2017 and for transactions with applications received prior to October 1, 2018), the provisions of the 2017 Rule can be implemented all at once or phased in over this period. For example, if a creditor chooses to phase in the 2017 Rule changes, those changes can be phased-in over the course of a transaction or by application date. Notwithstanding this flexibility, a person cannot phase in the 2017 Rule in a way that would violate provisions of Regulation Z that are not being changed. For example, during the optional compliance period, a creditor cannot provide a Good Faith Estimate followed by a Closing Disclosure for a transaction secured by a cooperative unit that is not considered to be real property under applicable state law. The creditor would violate 12 CFR 1026.38(i), which requires that information that was disclosed on the Loan Estimate be included on the Closing Disclosure.

Where in the Rule: See comments 1(d)(5)-1 and -2.

Oct 2017 59

Coverage

COOPERATIVES

The 2017 Rule creates a uniform rule that covers and requires the TILA-RESPA Disclosures for closed-end consumer credit transactions (other than reverse mortgages) secured by a cooperative unit, regardless of whether state law classifies cooperative units as real property.

TRUSTS

Under the 2017 Rule, for purposes of Regulation Z’s definition of “consumer,” credit extended to certain trusts established for tax or estate planning purposes is credit extended to a natural person. The 2017 Rule explains that a trust and its trustee are considered to be the same person for purposes of Regulation Z. Where credit is extended to trusts established for tax or estate planning purposes, the Loan Estimate and Closing Disclosure may be provided to the trustee on behalf of the trust. However, in rescindable transactions the Closing Disclosure must be given separately to each consumer who has the right to rescind. The 2017 Rule also explains that, on the Loan Estimate, a creditor must disclose the name and mailing address of each consumer to whom the Loan Estimate will be delivered. If the Loan Estimate is delivered to the trustee on behalf of the trust (and to no other consumer), a creditor may opt to disclose the name and mailing address of the trust only, although nothing prohibits the creditor from additionally disclosing the names of the trustee or of other consumers applying for the credit. Further, on both the Loan Estimate and the Closing Disclosure, a creditor may include a signature line and insert the trustee’s name below, along with a designation that the trustee is serving in its capacity as a trustee.

HOUSING ASSISTANCE LOANS

The The 2017 Rule revises two of the six criteria for the exemption from the integrated disclosure requirements for certain low-cost, non-interest bearing, subordinate lien, housing assistance loans.

Where in the Rule:

See § 1026.19(e), (f), and (g) and comments

19(e)(1)(i)-1 and -2, 19(f)(1)(i)-1, 19(f)(3)(ii)-

3, and 19(f)(4)(i)-1. See also

§§ 1026.1(d)(5), 1026.25(c)(1), and

1026.37(c)(5)(i), and comments 17(f)-1 and

-2, 18-3, 18(g)-6, 18(s)-1 and -4, and

37(a)(7)-2.

Where in the Rule:

See comment 2(a)(11)-3.

Where in the Rule:

See § 1026.3(h)(5) and (h)(6).

Oct 2017 60

Regarding the costs payable by the consumer at consummation, under the 2017 Rule: Transfer taxes, in addition to recording, application, and housing counseling fees, may be

payable by the consumer at consummation without losing eligibility for the partial exemption;

and

Recording fees and transfer taxes are excluded from the 1% cap on total costs payable by the

consumer at consummation.

Additionally, the 2017 Rule revises the disclosures that must be provided to meet a condition for the partial exemption. The creditor may provide a Loan Estimate and Closing Disclosure as an alternative to providing a disclosure of the cost of credit under 12 CFR 1026.18. Disclosures must comply with all Regulation Z requirements pertaining to those disclosures. The 2017 Rule explains that, assuming the other criteria for the partial exemption are satisfied, a creditor may provide either a compliant disclosure of the cost of credit under 12 CFR 1026.18 or a compliant Loan Estimate and Closing Disclosure, and does not need to provide the special information booklet or certain RESPA disclosures, including the Good Faith Estimate and HUD-1 settlement statement, as applicable.

Good faith requirement (i.e., tolerances) and revised disclosures

GOOD FAITH REQUIREMENT AND THE WRITTEN LIST OF SERVICE PROVIDERS

The 2017 Rule provides that the best information reasonably available standard (i.e., that there is no tolerance limit on charges so long as they are based on the best information reasonably available) applies to bona fide charges for third-party services if, based on the facts and circumstances: A consumer is permitted to shop for the

service, and

Selects a provider not listed on the written

list of service providers issued to the consumer, and

Those estimated charges are based on the best information reasonably available, even if the

bona fide charge is paid to the creditor’s affiliate.

Where in the Rule:

See the various changes to § 1026.19,

including § 1026.19(e)(3)(iii) and

(e)(3)(iv)(E), and comments 19(e)(3)(i)-1,

19(e)(3)(ii)-1, 19(e)(3)(ii)-2, 19(e)(3)(ii)-6,

19(e)(3)(iii)-2, 19(e)(3)(iii)-3, 19(e)(3)(iii)-

4, 19(e)(3)(iv)-2, 19(e)(3)(iv)-4,

19(e)(3)(iv)-5, 19(e)(3)(iv)(D)-1,

19(e)(3)(iv)(D)-2, 19(e)(3)(iv)(E)-1,

19(e)(3)(iv)(E)-2, 19(f)(2)(iii)-2, 37(a)(13)-

2 and -4, and 38(e)(2)(iii)(A)-2 and

38(i)(1)(iii)(A)-2.

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The 2017 Rule provides that the 10% cumulative tolerance standard applies to a required third-party, non-affiliate settlement service charge, even if the creditor has failed to disclose on the written list of service providers that required service or the written list was not provided at all, as long as the creditor permitted the consumer to shop for the service. The 2017 Rule provides that the zero tolerance standard applies to required settlement service charges paid to anyone, if, based on the relevant facts and circumstances, the consumer was not permitted to shop. In all cases, the 2017 Rule provides that whether a creditor permits a consumer to shop is based on the relevant facts and circumstances. The 2017 Rule indicates creditors are not prohibited from issuing revised written lists of service providers for informational purposes.

OTHER GOOD FAITH REQUIREMENTS

The 10% cumulative tolerance standard applies to the aggregate of the charges subject to that standard, not a particular charge. The 2017 Rule explains that, if an individual charge that is subject to the 10% cumulative tolerance standard was omitted from the Loan Estimate but charged at consummation, it may still be in good faith if the sum of all charges subject to the 10% cumulative tolerance is in good faith. For example, if the creditor requires lender’s title insurance, the creditor must disclose the service (i.e., lender title’s insurance) and the fee for the service. However, the creditor is not required to provide a detailed breakdown of all related fees that are not explicitly required by the creditor but that may be charged to the consumer, such as a notary fee, title search fee, or other ancillary and administrative services needed to perform or provide the settlement service required by the creditor. The 2017 Rule also provides that the best information reasonably available standard applies to property taxes, property insurance premiums (including homeowner’s insurance premiums), amounts placed in escrow, impound, reserve or similar accounts, prepaid interest, and third-party services not required by the creditor, so long as the charges (or omission of charges) were estimated based on the best information reasonably available. The best information reasonably available standard applies to these specified charges even if the charge is paid to the creditor or its affiliate as long as the charge is bona fide. To be considered bona fide, charges must be lawful and for services actually performed.

REVISED LOAN ESTIMATES

The 2017 Rule permits a creditor to provide a revised Loan Estimate for informational purposes as well as to reset tolerances. For example, if a changed circumstance, consumer requested change or

Oct 2017 62

other specified reason for revision allowed by the TILA-RESPA Rule has occurred, but it does not increase the sum of all costs subject to the 10% cumulative tolerance standard by more than 10%, a creditor is not prohibited from issuing a revised Loan Estimate for informational purposes. A revised Loan Estimate must be based on the best information reasonably available to the creditor, even if the revised disclosures may not be used for purposes of determining good faith. For example, if the creditor issues a revised Loan Estimate reflecting a new rate lock extension fee for purposes of determining good faith under the zero tolerance standard, other charges unrelated to the rate lock extension should be reflected on the revised Loan Estimate based on the best information reasonably available to the creditor at the time the revised Loan Estimate is provided even though these other updated charges will not be used to determine good faith. A creditor may not provide a revised Loan Estimate after it issues a Closing Disclosure even if the interest rate is locked on or after the date the Closing Disclosure is provided to the consumer. If a rate is locked or changes after a Closing Disclosure is provided to the consumer, the creditor must provide a corrected Closing Disclosure at or before consummation to reflect the changes. If the changes trigger a new 3 day requirement, the creditor must provide the corrected Closing Disclosure at least 3 business days before consummation. If a revised Loan Estimate is issued after the consumer indicates an intent to proceed, the expiration date and time are left blank on the revised Loan Estimate. A creditor may voluntarily extend the expiration date of a Loan Estimate, either orally or in writing. If the creditor does so, it must allow the consumer to rely on the charges and other terms disclosed in the Loan Estimate and to indicate an intent to proceed until the extended expiration date.

CORRECTED CLOSING DISCLOSURES

The 2017 Rule provides that a post-consummation corrected Closing Disclosure is not required if the only changes that would be required to be disclosed are changes to per-diem interest and disclosures affected by per-diem interest. However, if a creditor is providing a post-consummation corrected Closing Disclosure for reasons other than changes in per-diem interest but the per-diem interest has also changed, the creditor must disclose the corrected per-diem interest in the corrected disclosures. Additionally, the creditor must provide corrected disclosures for any disclosures that are affected by the change in per-diem interest. It also provides that a corrected Closing Disclosure must be based on the best information reasonably available to the creditor, even if the corrected disclosures may not be used for purposes of determining good faith.

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Shopping for settlement services

The 2017 TILA-RESPA Rule provides that whether a consumer is permitted to shop is determined by the relevant facts and circumstances. The itemization of the settlement service providers need not include all settlement services that may be charged to the consumer, but must include at least those settlement services required by the creditor for which the consumer may shop. For example, if the creditor requires lender’s title insurance and permits the consumer to shop, the creditor must disclose the service (i.e., lender title’s insurance) and the fee for the service on the Loan Estimate, and at least one available provider of the service on the written list of service providers. However, the creditor is not required under the written list of service provider requirements to provide a detailed breakdown of all related fees that are not explicitly required by the creditor but that may be charged to the consumer, such as a notary fee, title search fee, or other ancillary and administrative services needed to perform or provide the settlement service required by the creditor. The 2017 Rule identifies the tolerance standard for when the creditor permits shopping for settlement service providers, but fails to provide the written list (see above in Good Faith Requirement and Revised Disclosures). Settlement service providers disclosed on the written list of service providers must correspond to the settlement services required by the creditor for which the consumer may shop. Further, those service providers must be available to the consumer such that they are in business and provide services in the consumer’s or property’s area. Although a creditor is not required to use the model form for the written list of service providers, the proper use of the model form (including any permitted changes) provides a safe harbor. Further, some revisions to the model form may still allow the creditor to maintain the safe harbor. For example, deleting the column for estimated fee amounts is an example of an acceptable change to the model form for the written list of service providers.

Where in the Rule: See comments 19(e)(1)(vi)-1, 19(e)(1)(vi)-

2, 19(e)(1)(vi)-3, and 19(e)(1)(vi)-4. See

also 19(e)(3)(ii)-1, 19(e)(3)(ii)-2,

19(e)(3)(ii)-6, and 19(e)(3)(iii)-2.

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Disclosure of principal reductions (also known as principal curtailments)

The 2017 TILA-RESPA Rule provides details for the proper disclosure of principal reductions, such as principal reductions provided to cure tolerance violations. On the Closing Disclosure, the 2017 Rule explains how principal reductions are disclosed in the Summaries of Transactions table (or Payoffs and Payments table on the alternative Closing Disclosure) and when to factor them into the Calculating Cash to Close table. The 2017 Rule requires the disclosure of principal reductions to include the following: The amount of the principal reduction;

The phrase “principal reduction” or a similar phrase;

For a principal reduction disclosure on the alternative Closing Disclosure only, the name of the

payee;

If applicable to the transaction, the phrase “Paid Outside of Closing” or “P.O.C.” and the name

of the party making the payment; and

If the principal reduction is used to cure a tolerance violation, a statement that the principal

reduction is being provided to offset charges that exceed the legal limits, using any language

that meets the clear and conspicuous standard.

It permits the use of an addendum for the principal reduction disclosure in certain circumstances when additional space is needed.

Total of payments disclosure

The 2017 TILA-RESPA Rule sets forth tolerances that apply to the Total of Payments disclosure generally as well as for purposes of a consumer’s right of rescission. The tolerances for the Total of Payments disclosure mirror the tolerances applicable to the finance charge.

Where in the Rule: See comment 38-4. See also

§§ 1026.38(e)(2)(iii)(A)(3) and

(i)(1)(iii)(A)(3), and comments 19(f)(2)(v)-1,

38(e)(2)(iii)(A)-3, 38(i)(1)(iii)(A)-3,

38(j)(1)(v)-2, 38(j)(4)(i)-1, and

38(t)(5)(vii)(B)-3.

Where in the Rule: See §§ 1026.23(g)(1), (g)(2), (h)(2), and

1026.38(o)(1) and comments 23(g)-1,

23(h)(2)-1, 23(h)(2)-2, 38(o)-1, and 38(o)(1)-1.

Oct 2017 65

In general, the Total of Payments disclosure is considered accurate if it: Is understated by no more than $100; or

Is greater than the amount required to be disclosed.

The 2017 Rule provides separate tolerances for the Total of Payments for certain refinance transactions and after the initiation of foreclosure on a consumer’s principal dwelling that secures the credit obligation. The 2017 Rule states that the Total of Payments excludes charges for principal, interest, mortgage insurance, or loan costs that are offset by another party through a specific credit. General credits, however, may not be used to offset amounts for purposes of the Total of Payments.

Simultaneous subordinate lien loans

The 2017 TILA-RESPA Rule provides that, in a purchase transaction that involves a subordinate lien loan, if the Closing Disclosure for the first lien loan has all the required disclosures related to the seller, then: A settlement agent may provide the seller

with only the first lien Closing Disclosure

(that relates to the seller’s transaction

reflecting the actual terms of the seller’s

transaction) instead of also providing the

seller with the Closing Disclosure for the

subordinate lien loan.

The requirement to disclose the Summary

of Seller’s Transaction table does not apply to the Closing Disclosure for the simultaneous

subordinate lien loan.

A creditor may use the optional alternative disclosures, (i.e., the alternative disclosures

formerly used only for transactions without a seller) when disclosing the simultaneous

subordinate lien loan.

If the creditor uses the alternative tables on the Loan Estimate for the subordinate lien loan, it must also use them on Closing Disclosure for that loan.

Where in the Rule:

See §§ 1026.37(d)(2), (h)(1)(iii)(A)(2), and

(h)(2) and 1026.38(d)(2), (e), (e)(2)(ii),

(e)(4)(ii), (i)(4)(ii)(A)(2), and (t)(5)(vii), and

comments 19(f)(4)(i)-2, 37(a)(9)-1, 37(d)(2)-1,

37(h)(1)-2, 37(h)(1)(iii)-2, 37(h)(1)(vii)-5,

37(h)(2)-1, 37(h)(2)(iii)-2, 38(a)(3)(iii)-1,

38(a)(4)-2, 38(d)(2)-1, 38(e)-1, 38(i)(3)-1.ii,

38(i)(4)(ii)(A)-2, 38(j)-3, 38(j)(1)(ii)-1,

38(j)(1)(v)-3, 38(j)(2)(vi)-2, 38(k)-1, 38(k)(1)-1,

38(k)(2)(vii)-1, 38(t)(5)(vii)(B)-1 and -2.

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If the creditor for the subordinate lien uses the alternative tables on the disclosures for the subordinate lien loan, contributions towards the subordinate lien from the seller must be included in the Closing Disclosures for both the first lien (in the Summaries of Transactions table) and subordinate lien (in the Payoffs and Payments table).

For a simultaneous subordinate lien loan, a creditor may leave the seller’s name and address

blank on the Closing Disclosure for the simultaneous subordinate lien.

The 2017 Rule provides instructions for disclosing the Disbursement Date on the Closing Disclosure that also apply to simultaneous subordinate lien loans (see below in the Other disclosures in the Closing Disclosure section). In a purchase transaction involving a simultaneous subordinate lien loan, the purpose of the subordinate lien loan is disclosed as “Purchase” on the Loan Estimate and Closing Disclosure, as long as that loan is secured by the purchased property. Funds from the subordinate lien loan are included in the Adjustments and Other Credits calculation on the Loan Estimate for the first lien, and are disclosed in the Summaries of Transactions table on the Closing Disclosure for the first lien. Unless using the optional alternative Loan Estimate or alternative Closing Disclosure to disclose the simultaneous subordinate lien loan, the sales price is not disclosed in the Summaries of Transactions table for the Closing Disclosure for the simultaneous subordinate lien loan. Additionally, the sales price is not used in the Calculating Cash to Close calculations on the Loan Estimate or Closing Disclosure for the simultaneous subordinate lien loan. The 2017 Rule provides instructions for disclosing amounts as a positive or negative number in the Calculating Cash to Close tables, including for the simultaneous subordinate lien loan (see below in the Use of positive and negative numbers for certain disclosures in the Loan Estimate and Closing Disclosure section).

Construction loans

ALLOCATION OF COSTS WHEN SEPARATE DISCLOSURES ARE USED FOR THE CONSTRUCTION PHASE AND PERMANENT PHASE

The 2017 TILA-RESPA Rule provides that if the creditor discloses a construction-permanent loan as two separate transactions,

Where in the Rule:

See comments 17(c)(6)-5, 19(e)(1)(iii)-5,

37(a)(7)-1, 37(a)(8)-3, 37(a)(10)-2, 37(b)(2)-1,

37(b)(6)(iii)-1, 37(c)-2, 37(f)-3, 37(f)(6)-3,

37(h)(1)(v)-2, 37(h)(2)(iii)-1, 38(a)(3)(vii)-1,

38(f)-2, 38(i)(3)-1, 38(j)(1)(v)-2, and app. D-7.

Oct 2017 67

the creditor must allocate to the construction phase amounts for finance charges (12 CFR 1026.4) and points and fees (12 CFR 1026.32(b)(1)) that would not be imposed but for the construction financing. For example, inspection and handling fees for the staged disbursement of construction loan proceeds must be included in the disclosures for the construction phase and may not be included in the disclosures for the permanent phase. Fees that are not finance charges or points and fees may be allocated between the construction phase and permanent phase in any manner the creditor chooses.

TIMING OF THE LOAN ESTIMATE WHEN SEPARATE DISCLOSURES ARE USED FOR THE CONSTRUCTION PHASE AND PERMANENT PHASE

The 2017 Rule provides that when disclosing a construction-permanent loan as two separate transactions, a creditor must provide a Loan Estimate for a particular phase within 3 business days of receiving the application for that phase (i.e., the creditor must provide the Loan Estimate for the construction phase within 3 business days of receiving the application for the construction phase and the Loan Estimate for the permanent phase within 3 business days of receiving the application for the permanent phase). If the creditor receives a single application for both phases and choses to conduct separate closings and provide separate disclosures for the construction phase and permanent phase, it provides the Loan Estimate for the permanent phase within 3 business days of receipt of such application, and may proceed with a separate closing and Closing Disclosure for the permanent phase upon completion or near-completion of the construction phase if a revised Loan Estimate is not needed.

DISCLOSURE OF SALES PRICE

For construction loans that are not also purchase transactions (for example, loans to build where no land is being purchased), the disclosure of the property value: On the Loan Estimate, may, at the creditor’s option, include the estimated value of

improvements to be made on the property.

On the Closing Disclosure, must be the value of the property used to determine the approval

of the credit transaction, including improvements to be made on the property, if those

improvements were used to determine the approval of the credit transaction.

DISCLOSURE OF LOAN TERM

The 2017 Rule explains how a creditor discloses the Loan Term for a construction-permanent loan: If disclosed as a single transaction, the Loan Term is the total combined term of both phases.

Oct 2017 68

If disclosed as separate transactions, the Loan Term of the permanent phase is counted from

the date the interest for the permanent phase periodic payment begins to accrue.

DISCLOSURE OF PRODUCT

The 2017 Rule explains how to disclose the duration of the “Interest Only” feature for the construction loan or the construction phase of a construction-permanent loan. If there is a final balloon payment that includes principal, it is not counted for purposes of the

determining the duration of the “Interest Only” payment period.

For a combined construction-permanent disclosure, the “Interest Only” payment period is

disclosed as the full term of the construction phase, plus any additional interest only period in

the permanent phase. There is no balloon payment at the end of the construction phase if a

construction-permanent loan is disclosed as a single transaction.

It also explains how to disclose the Product if the interest rate for the permanent phase is not known at consummation or will increase from the interest rate for the construction phase. For construction-permanent loans with a single consummation (with combined or separate

disclosures), if the interest rate for the permanent phase is not known at consummation, the

Product for the permanent phase is an Adjustable Rate product, as the interest rate may

increase after consummation.

Similarly, if interest rate for the permanent phase is known but is different from the interest

rate of the construction phase, the Product for the permanent phase is a Step-Rate product, as

the interest rate will change after consummation and the change is known.

The 2017 Rule discusses the fact that any disclosures that would accompany the applicable Product disclosure would also apply, such as disclosure of the duration of the introductory rate period, the Adjustable Payment table, or the Adjustable Interest Rate table. For example, if the permanent phase is considered an Adjustable Rate product because the permanent phase interest rate may change upon conversion from the construction phase, but is not known at consummation, then the disclosure of the duration of the introductory rate period is also required. If the permanent phase is disclosed separately, has a loan term of 30 years, and does not itself have an introductory rate, the introductory rate period disclosure would be “0/30.”

DISCLOSURE OF INTEREST RATE

The 2017 Rule explains how to disclose the interest rate in construction-permanent loans, if the permanent phase is disclosed at the same time as the construction transaction (either in combined or separate disclosures) and the interest rate is unknown at consummation.

Oct 2017 69

If the permanent loan has an adjustable rate and separate disclosures are provided, the rate

disclosed for the permanent phase is the fully-indexed rate.

If the permanent loan has a fixed rate that is not known at consummation, it is treated as an

adjustable rate, and if separate disclosures are provided, the rate disclosed for the permanent

phase is the fully-indexed rate.

If the permanent loan has a fixed rate that is known and will not be adjusted upon conversion

from the construction phase and separate disclosures are provided, that rate is disclosed.

It also explains that if the contract indicates the creditor may modify the interest rate for the permanent loan when the construction phase converts to the permanent phase, the creditor must provide the adjustable rate disclosures under 12 CFR 1026.20(c), regardless of whether the permanent phase itself is fixed rate or adjustable rate after conversion. However, the disclosures under 12 CFR 1026.20(d) are not required.

DISCLOSURE OF INCREASES TO THE PERIODIC PAYMENT

The 2017 Rule explains how to disclose the answer to “Can this amount increase after closing?” for construction loans or construction-permanent loans where the amounts and timing of advances are unknown. For the construction loan or separate construction phase of a construction-permanent loan, even though appendix D produces interest-only periodic payments that are equal in amount, the creditor discloses “YES” in the “Can this amount increase after closing?” disclosure. The 2017 Rule also explains how to disclose the increase in periodic payment disclosures in the Loan Terms table and First Change/Amount in the Adjustable Payments table for separate construction disclosures or the combined construction-permanent disclosures where interest is payable only on the amount advanced for the time it is outstanding and appendix D is used to calculate the periodic payment: To disclose the increase in periodic payment disclosures, the creditor may use months or years.

The maximum possible payment in the Loan Terms table and Adjustable Payments table is

calculated based on the maximum possible principal balance that could be outstanding during

construction.

The creditor can omit and leave blank the amount in the “First Change/Amount” disclosures of

the Adjustable Payment table, but not the timing of the first change. The timing of the first

change is the earliest possible payment that may change under the terms of the legal

obligation.

Oct 2017 70

For loans that are adjustable rate where interest is payable only on the amount advanced for the time it is outstanding and appendix D is used to calculate the periodic payment: The increase in periodic payment disclosures are based on changes in the interest rate and

total amount advanced.

The creditor also discloses the Adjustable Interest Rate table.

PROJECTED PAYMENTS

The 2017 Rule explains how to disclose the Projected Payments table for the construction phase of a construction-permanent loan if the creditor uses appendix D to calculate the periodic payments. If the construction and permanent phases are disclosed as separate transactions: The construction phase must be disclosed according to the requirements for the Projected

Payments table, including disclosing the number and amounts of any interest payments.

If the terms of the construction phase do not account for repayment of the entire principal, it

must disclose a balloon payment.

If the construction and permanent phases are disclosed as a single transaction: The Projected Payments table must reflect the interest-only payments during the construction

phase in the first column. The first column also reflects the amortizing payments, and

mortgage insurance and escrow payments, if any, for the permanent phase if the term of the

construction phase is not a full year.

The 2017 Rule explains how to disclose the mortgage insurance and escrow payments in the Projected Payments table for construction-permanent transactions disclosed as a single transaction: If the construction phase is a full year and does not include mortgage insurance or escrow,

the first column should reflect the projected payments for the construction phase, “0” in the

first column for mortgage insurance, and a hyphen or dash in the first column for escrow, as

applicable.

If the construction phase is not a full year and does not include mortgage insurance or

escrow, the first column should also reflect the amortizing payments and the mortgage

insurance and escrow payments, if any, for the permanent phase.

Oct 2017 71

CONSTRUCTION COSTS AND CONSTRUCTION HOLDBACKS

The 2017 Rule explains where the costs of construction or amounts held in reserve for the construction loan (holdbacks) are disclosed: On the Loan Estimate, these amounts are factored into the Funds for Borrower calculation (or

the Payoffs and Payments calculation, if using the optional alternative Loan Estimate) as

existing debt being satisfied in the transaction.

On the Closing Disclosure, these amounts are disclosed in the Summary of Borrower’s

Transactions table (or the Payoffs and Payments table, if using the alternative Closing

Disclosure), and factored into the Funds for Borrower calculation (or the Payoffs and

Payments calculation if using the alternative Closing Disclosure).

The 2017 Rule does not specifically define holdbacks, but refers to a portion of a construction loan’s proceeds that a creditor places in a reserve or other account at consummation and clarifies that such an amount may be disclosed separately or as part of the other construction costs. The amount may be labeled with any accurate term, so long as any label the creditor uses is in accordance with the “clear and conspicuous” standard. If the amount is disclosed separately, it may be separately itemized, but the other construction costs must not include the amount of the holdback so as to avoid double counting in the Calculating Cash to Close calculations.

DISCLOSURE OF DISBURSEMENT DATE

The 2017 Rule explains how to disclose the Disbursement Date for purchase and non-purchase transactions, including construction-permanent loans (see below in the Other disclosures in the Closing Disclosure section for further guidance).

DISCLOSURE OF INSPECTION AND HANDLING FEES

The 2017 Rule explains the disclosure of construction inspection and handling fees. The 2017 Rule explains such costs are subject to the good faith tolerance standards and are disclosed as follows: Construction and handling costs collected before or at consummation are disclosed in the

Loan Costs table.

Construction and handling costs collected after consummation are disclosed in an

addendum. The 2017 Rule includes additional information regarding the addendum.

Additionally, such costs are not included in the Calculating Cash to Close table.

The 2017 Rule explains that subsequent events that cause a disclosure to become inaccurate for construction inspection and handling fees would not be a violation, but may require revised disclosures.

Oct 2017 72

Use of positive and negative numbers for certain disclosures in the Loan Estimate and Closing Disclosure

The 2017 TILA-RESPA Rule permits the use of positive and negative numbers, if applicable, for the amounts disclosed (or used to calculate the disclosures) for: Total Closing Costs

Payoffs and Payments

Adjustments and Other Credits

Rounding

The 2017 TILA-RESPA Rule simplifies certain rounding requirements as follows:

ON THE LOAN ESTIMATE

The exact percentage amounts in the following disclosures are rounded to three decimal places: Certain Loan Terms table disclosures - the Interest Rate and percentages under the

subheading “Can this amount increase after closing?,”

Certain Loan Costs - the points disclosed in Origination Charges,

Certain Other Costs - the percentage disclosed for the Prepaid Interest amount,

The AIR table, and

Certain Comparisons table disclosures - the APR and the TIP.

Any trailing zeroes to the right of the decimal are not included in the disclosure (i.e., 1.05%, not 1.050%). Per diem interest amounts disclosed in Prepaids and monthly amounts disclosed in the Initial Escrow Payment At Closing are not rounded to the nearest dollar, but are rounded to the nearest whole cent.

Where in the Rule:

See §§ 1026.37(h)(1)(i), (h)(1)(vii), (h)(2)(ii)

and (iii) and 1026.38(e)(2)(ii) and (e)(4)(ii).

Where in the Rule:

See §§ 1026.37(o)(4) and 1026.38(t)(4)(ii),

and comments 37(o)(4)(i)(A)-1, 37(o)(4)(ii)-

1, 38(g)(2)-3, and 38(i)(6)(ii)-1.

Oct 2017 73

ON THE CLOSING DISCLOSURE

The exact percentage amounts in the following disclosures are rounded to three decimal places: The Loan Terms table

Certain Loan Costs - the points disclosed in Origination Charges,

The AIR table,

Certain Loan Calculations table disclosures - the APR and the TIP.

Any trailing zeroes to the right of the decimal are not included in the disclosure (i.e., 1.05%, not 1.050%). For the Final amount in the Funds for Borrower disclosure in the Closing Disclosure Calculating Cash to Close table, if the calculation results in zero, the number is disclosed as a $0 (not $0.00). The creditor should disclose “$0.00” (not “$0”) for Prepaid Interest if, based on the best information available, the creditor does not believe it will collect interest for a period between closing and the date from which interest will be collected with the first monthly payment.

Calculating cash to close

The TILA-RESPA Rule provides explanations of various calculations in the Calculating Cash to Close table.

ON THE LOAN ESTIMATE:

Closing Costs Financed

In transactions other than simultaneous subordinate lien loans the sales price is included in the Closing Costs Financed calculation as a payment to a third party. Down Payment/Funds from Borrower and Funds for Borrower

In purchase transactions, the creditor subtracts the sum of the loan amount and any amount for loans assumed or for loans “taken subject to” (i.e., any loans on the property subject to which the consumer is taking title to the property) that will be disclosed on the Closing Disclosure from the sale price of the property, except for simultaneous subordinate financing or transactions that involve improvements to be made on the property, or when the sum of the loan amount and any amount for loans assumed or “taken subject to” exceeds the sale price of the property.

Where in the Rule:

See the various changes to §§ 1026.37(h) and

1026.38(e), (i), and (j).

Oct 2017 74

In a purchase transaction that is a simultaneous subordinate financing transaction or that involves improvements to be made on the property, or when the sum of the loan amount and any amount for loans assumed or “taken subject to” exceeds the sale price, the Funds for Borrower disclosure is used. The Down Payment and Funds from Borrower calculation is independent of any loan program or investor requirements. Seller Credits

Seller credits may be disclosed as a lump sum in the Calculating Cash to Close table, or at the creditor’s option, may be reflected in the specific Loan Costs or Other Costs to which they are applicable. Adjustments and Other Credits

Explains how to disclose the Adjustments and Other Credits if the amount required to be paid by the consumer is not more than the amount of credits (e.g., for some purchase transactions, the payoff of unsecured debt is less than the amount of credits). Amounts provided in advance of the real estate closing by third parties not otherwise involved in the transaction (such as gifts by family members) are not required to be disclosed. Adjustments that require additional funds from the consumer pursuant to the real estate contract, such as tenant security deposits, can be included in the Adjustments and Other Credits so long as they are not included in the Down Payment/Funds from Borrower or Funds for Borrower amounts as debt being satisfied. Optional Alternative Calculating Cash to Close Table for Transactions without a Seller or for Simultaneous Subordinate Lien Loans

Positive numbers are permitted in the Total Closing Costs and Payoffs and Payments disclosures (see above in the Use of positive and negative numbers for certain disclosures in the Loan Estimate and Closing Disclosure section).

ON THE CLOSING DISCLOSURE

The amount disclosed in the “Loan Estimate” column of the table is based on the most recent Loan Estimate provided to the consumer, including revised Loan Estimates provided for informational purposes only. Closing Costs Financed

The 2017 Rule provides a formula for calculating the Closing Costs Financed, which requires subtracting the total amount of payments to third parties (not disclosed in the Loan Costs or Other Costs tables) from the disclosed loan amount.

Oct 2017 75

Total amount of payments to third parties for this calculation includes amounts such as

the sale price of the property as disclosed in the Summaries of Transactions table,

construction costs, and payoffs of secured or unsecured debt, as applicable.

For some loans, no sale price will be disclosed in the Summaries of Transactions table and thus will not be included in the calculation as a payment to third parties. Construction costs and payoffs of secured or unsecured debt are examples of amounts not otherwise disclosed in the Loan Costs or Other Costs tables. Down Payment/Funds from Borrower and Funds for Borrower

In purchase transactions, the creditor subtracts the sum of the loan amount and any amount for loans assumed or for loans “taken subject to” (i.e., any loans on the property subject to which the consumer is taking title to the property) disclosed on the Closing Disclosure from the sale price of the property, except for simultaneous subordinate financing or transactions that involve improvements to be made on the property, or when the sum of the loan amount and any amount for loans assumed or “taken subject to” exceeds the sale price of the property. In a purchase transaction that is a simultaneous subordinate financing transaction or that involves improvements to be made on the property, or when the sum of the loan amount and any amount for loans assumed or “taken subject to” exceeds the sale price, the sum of the loan amount and any amount for loans assumed or for loans “taken subject to” disclosed on the Closing Disclosure is subtracted from the total amount of existing debt being satisfied in the transaction, as disclosed in the Summary of Borrower’s Transaction table. The Down Payment and Funds from Borrower calculation is independent of any loan program or investor requirements. Seller Credits

If there is a difference between the amount of seller credits disclosed on the Loan Estimate and those disclosed on the Closing Disclosure, not attributed to rounding, there must be a statement that the consumer should see details of the credits. There are options for the statements disclosed under the heading “Did this change?” based on whether the seller credit is general, specific, or both. Adjustments and Other Credits

The 2017 Rule does not require amounts provided in advance of the real estate closing by third parties not otherwise involved in the transaction (such as gifts by family members) to be disclosed in the Summaries of Transactions table, and as a result, they will not be included in the Adjustments and Other Credits calculation.

Oct 2017 76

Alternative Calculating Cash to Close Table for Transactions without a Seller

The 2017 Rule allows positive number disclosures in the Total Closing Costs and Payoffs and Payments amounts (see above in the Use of positive and negative numbers for certain disclosures in the Loan Estimate and Closing Disclosure section).

Disclosure of payoffs of existing liens, and unsecured debt

The 2017 TILA-RESPA Rule provides, if the creditor is not using the alternative Loan Estimate and Closing Disclosures, payoffs of existing liens and unsecured debts are disclosed as follows: On the Loan Estimate for some

transactions, including some purchase

transactions, these amounts are factored

into the Funds for Borrower calculation.

Otherwise, these amounts are factored

into the Adjustments and Other Credits

calculation.

On the Closing Disclosure, these amounts are disclosed in the Summaries of Transactions

table and, for some transactions (including some purchase transactions), are factored into

the Funds for Borrower calculation. Otherwise, these amounts are factored into the

Adjustments and Other Credits calculation.

Disclosure of estimated value when no sales price or appraised value

The 2017 TILA-RESPA Rule states that if there is no seller, the creditor has not obtained an appraisal of the property at the time the disclosure is provided, and the creditor has prepared its own estimate of value, the creditor must use its own estimate when disclosing the estimated value of the property rather than disclose an estimated value received from the consumer.

Where in the Rule:

See the various changes to

§§ 1026.37(h)(1)(iii)(A)(2) and (B), (h)(1)(v),

and 1026.38(j)(1)(v) and comments

37(h)(1)(ii)-1, 37(h)(1)(v)-2, 37(h)(1)(vii)-6,

37(h)(2)(iii)-1, 38(i)(3)-1, 38(i)(6)(ii)-1,

38(j)(1)(v)-2, 38(t)(5)(vii)(B)-1, and app. D.-

7.vi.

Where in the Rule:

See comments 37(a)(7)-1 and 38(a)(3)(vii)-1.

Oct 2017 77

Separation of consumer and seller information on Closing Disclosures

The 2017 TILA-RESPA Rule explains the three methods by which a creditor can make modifications to the Closing Disclosure in order to provide separate Closing Disclosures to consumers and sellers, and provides examples of when the creditor may want to provide separate Closing Disclosures. To provide separate disclosures for the consumer or seller, a creditor may: Leave the applicable disclosure blank on the form provided to the other party;

Omit the table or label, as applicable, for the form provided to the other party; or

Provide the seller, a modified version of the form provided in appendix H.

The 2017 Rule provides a discussion of Regulation P and the Gramm-Leach-Bliley Act that creditors who are concerned about providing consumer or seller nonpublic personal information to nonaffiliated third parties may find helpful to review.

Other disclosures in the Loan Estimate

The 2017 TILA-RESPA Rule also makes other clarifications and changes regarding disclosures in the Loan Estimate. The 2017 Rule provides that the Loan Amount disclosed in the Loan Estimate is the total amount the consumer will borrow as set forth on the face of the note. If multiple changes to periodic principal and interest payments may occur in a single year, the creditor combines the changes and discloses them as a single range of payments within one column of the Projected Payments table. A creditor may indicate that only a portion of the amounts disclosed in the Taxes, Insurance, and Assessment section of the Projected Payment table will be paid using escrow account funds, including property taxes and homeowner’s insurance, if applicable.

Where in the Rule:

See comments 38(t)(5)(v)-1, -2, and -3, and

38(t)(5)(vi)-1.

Where in the Rule:

See § 1026.37(b)(1), and comments

37(c)(1)(iii)(B)-1, 37(c)(4)(iv)-2, 37(g)(6)(ii)-

1, and 37(l)(3)-1.

Oct 2017 78

Subject to the terms of the legal obligation, both specific and general lender credits are included under the “Lender Credits” label. The TIP includes prepaid interest that the consumer will pay, but does not include prepaid interest that someone other than the consumer will pay. Also, it provides that prepaid interest that is disclosed as a negative number must be included as a negative value when calculating the TIP.

Other disclosures in the Closing Disclosure

The 2017 TILA-RESPA Rule also makes other clarifications and changes regarding the disclosures on the Closing Disclosure. The 2017 Rule provides that the Disbursement Date to be used in the Closing Disclosure: In a purchase transaction, is generally the

date that the Cash to Close amount is

expected to be paid to the consumer or seller.

In a non-purchase transaction, is the date some or all of the loan amount is expected to be

paid to the consumer or a third party other than the settlement agent.

In a simultaneous subordinate lien transaction, is the date that some or all of the loan

amount is expected to be paid to the consumer or a third party other than the settlement

agent.

The creditor only includes the names and mailing addresses of persons to whom credit is extended under the label “Borrower.” The 2017 Rule reminds creditors that the preexisting rule allows a creditor, at its option, to add consumer signature lines on the Closing Disclosure as long as the creditor properly discloses, above the signature line, that consumers do not have to accept the loan because they signed or received the form. In rescindable transactions, the consumer signature lines could include consumers who have a right to rescind under Regulation Z. The total amount of fees for recording deeds and security instruments must each be disclosed on the first line under the subheading “Taxes and Other Government Fees,” and the total amounts paid for all recording fees must be disclosed in the applicable column. The 2017 Rule explains that if the creditor chooses, it can itemize the individual recording fees, and is permitted to do so on a separate addendum, consistent with the preexisting rule. Under the subheading “Escrow Account” on page 4 of the Closing Disclosure:

Where in the Rule:

See the various changes to

§ 1026.38(a)(3)(iii), (g)(1), (l)(7) and its

associated commentary, and comments

38(a)(4)-4 and 38(g)(1)-3.

Oct 2017 79

A creditor may use the 12 month period beginning with the initial payment (instead of

consummation) for the Non-Escrowed Property Costs over Year 1, if it uses the Regulation

X Escrow Account Analysis (12 CFR 1024.17), for the Escrowed Property Costs over Year 1

and the Monthly Escrow Payment disclosures. Alternatively, if the creditor uses the 12

month period beginning with consummation for certain of these disclosures, there may be

less than 12 monthly payments used, if, based on the payment schedule in the legal

obligation, there are less than 12 monthly payments to the escrow account in the first year

after consummation.

If the creditor is required to disclose the total amount of mortgage-related obligations

during the first year that the consumer will pay directly without an escrow account, the

creditor may use the 12 month period beginning with the initial payment (instead of

consummation).

Provides for the inclusion of ongoing payments for mortgage insurance within the amounts

disclosed.

Permits a creditor to use an addendum if additional lines are needed to complete the

escrow account disclosures.

Other minor changes

The 2017 TILA-RESPA Rule also corrects various typographical errors and references. The 2017 Rule corrects a typographical error that incorrectly references the Closing Disclosure section (12 CFR 1026.19(f)) instead of the intended cross reference to the revised estimates section (12 CFR 1026.19(e)(3)(iv)) when discussing revised estimates for delayed settlement dates for construction loans. It corrects a typographical error that incorrectly references a Closing Disclosure section instead of the intended cross reference to the Loan Estimate Contact Information section. It corrects a typographical error that incorrectly says “fractional” instead of the intended word “functional” when discussing the “In 5 Years” disclosure of the Comparisons table. It removes a cross-reference to 12 CFR 1026.37(g)(6)(ii), to conform with the amendment to comment 37(g)(6)(ii)-1.

Where in the Rule: See § 1026.19(e)(3)(iv)(F).

Where in the Rule: See comment 37(k)-3.

Where in the Rule: See comment 37(l)(1)(i)-1.

Where in the Rule: See § 1026.38(h)(3).

Oct 2017 80

It corrects a typographical error to replace the word “non” with “is not” when discussing the use of the integrated disclosure forms for non-federally related mortgage loans. It corrects a typographical error that incorrectly references 12 CFR 1026.38(t)(5)(viii) instead of the intended cross reference to 12 CFR 1026.38(t)(5)(vii).

Where in the Rule: See comment 38(t)(3)-1.

Where in the Rule: See comment 38(t)(5)(vii)-2.

Oct 2017 81

1

BILLING CODE: 4810-AM-P

BUREAU OF CONSUMER FINANCIAL PROTECTION

Docket No. CFPB-2017-0016

Policy Guidance on Supervisory and Enforcement Priorities Regarding Early Compliance

with the 2016 Amendments to the 2013 Mortgage Rules Under the Real Estate Settlement

Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z)

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Policy guidance.

SUMMARY: The Consumer Financial Protection Bureau (Bureau) is issuing policy guidance

on its supervisory and enforcement priorities regarding early compliance with the final rule it

issued in August 2016 (2016 Mortgage Servicing Final Rule) amending certain of the Bureau’s

mortgage servicing rules.

DATES: The Bureau released this Policy Guidance on its website on June 27, 2017.

FOR FURTHER INFORMATION CONTACT: Joel L. Singerman, Counsel, or Laura A.

Johnson, Senior Counsel, Office of Regulations, at 202-435-7700.

SUPPLEMENTARY INFORMATION:

I. Summary

On August 4, 2016, the Bureau issued the 2016 Mortgage Servicing Final Rule clarifying,

revising, or amending certain of the Bureau’s mortgage servicing rules.1 Each of the changes

will take effect on either Thursday, October 19, 2017, or Thursday, April 19, 2018.2 The Bureau

1 Amendments to the 2013 Mortgage Rules under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z), 81 FR 72160 (Oct. 19, 2016). 2 See id. at 72160, 72349-50.

Oct 2017 82

2

has heard concerns that these midweek effective dates for the 2016 Mortgage Servicing Final

Rule could create operational challenges for servicers. The Bureau understands that, for many

servicers, the Thursday effective dates could afford less than a full day—from the close of

business overnight on each of the preceding Wednesdays—to update and test systems in order to

be compliant with the 2016 amendments. If servicers do not have sufficient time to complete

these tasks, their systems may be more likely to produce errors, which could expose servicers

and consumers to risk. Industry participants have notified the Bureau that implementing the

2016 Mortgage Servicing Final Rule during the weekend, with early compliance beginning on

the Monday before each of the respective Thursday effective dates, would address these

concerns.

The Bureau understands industry’s concerns and believes that, in the context of the 2016

Mortgage Servicing Final Rule, servicers and consumers are likely to benefit if servicers have

the weekend immediately before each of the effective dates to update and test their systems. The

Bureau does not, therefore, intend to take supervisory or enforcement action for violations of

existing Regulation X or Regulation Z resulting from a servicer’s compliance with the 2016

Mortgage Servicing Final Rule occurring up to three days before the applicable effective dates.

For these purposes, “up to three days before the applicable effective dates” means, for the

amendments that will take effect on Thursday, October 19, 2017, the period of Monday, October

16, through Wednesday, October 18, 2017; and, for the amendments that will take effect on

Thursday, April 19, 2018, the period of Monday, April 16, through Wednesday, April 18, 2018.

II. Regulatory Requirements

This Policy Guidance is a non-binding general statement of policy articulating

considerations relevant to the Bureau’s exercise of its supervisory and enforcement authority. It

Oct 2017 83

Filing instructions guide for HMDA data collected in 2017 OMB Control #3170-0008

Oct 2017 84

Version log The following is a version log that tracks the history of this document and its updates:

Date Version Section Changes

August 2017 2.2 3. 2017 File Specifications

Section 3.3

Updated loan application/register format to

clarify that each covered loan or application should appear on its own line in the

loan/application register.

July 2017 2.1 2017 Edit Specifications

Removal of quality edit Q046.

July 2016 2.0 All

Publication of the Filing Instructions Guide

and its components, including File

Specifications as revised.

January 2016 1.0 File Specifications Original Document

Oct 2017 85

Filing instructions guide for HMDA data collected in 2018 OMB Control #3170-0008

Oct 2017 86

Version log The following is a version log that tracks the history of this document and its updates:

Date Version Section Changes

August 2017 3.2 5. 2018 Edit

Specifications

1. Section 5.3, Table 7 and 8

Removed edit Q615 from version 3.1 published in

August 2017. Re-aligned edit IDs in table 7 and

table 8 with the edit IDs published in version 3.0 in

July 2017.

August 2017 3.1

1. What’s in

the FIG?;

3. 2018 File

Specifications;

4. 2018 Data

Specifications;

and

5. 2018 Edit

Specifications

1. Section 1.3

Updated to include the amendments in the 2017

HMDA Rule.

2. Section 3.3

Updated loan application/register format to clarify

that each covered loan or application should appear

on its own line in the loan/application register.

3. Section 3.4, Table 2, and Section 4.2.2 Updated description of Loan Type, Code 3.

4. Section 3.4, Table 2, and Section 4.2.2 Added Code 5 to Loan Purpose.

5. Section 3.4, Table 2, Section 4.2.2, and Section 5.3 Table 6 Updated the names of the following data fields: #24 Ethnicity of Applicant or Borrower:

Conditional Free Form Text Field for Code 14

to Ethnicity of Applicant or Borrower: Free

Form Text Field for Other Hispanic or Latino.

#30 Ethnicity of Co-Applicant or Co-Borrower:

Conditional Free Form Text Field for Code 14

to Ethnicity of Co-Applicant or Co-Borrower:

Free Form Text Field for Other Hispanic or

Oct 2017 87

Date Version Section Changes

Latino.

#38 Race of Applicant or Borrower:

Conditional Free Form Text Field for Code 1

to Race of Applicant or Borrower: Free Form

Text Field for American Indian or Alaska

Native Enrolled or Principal Tribe.

#39 Race of Applicant or Borrower:

Conditional Free Form Text Field for Code 27

to Race of Applicant or Borrower: Free Form

Text Field for Other Asian.

#40 Race of Applicant or Borrower:

Conditional Free Form Text Field for Code 44

to Race of Applicant or Borrower: Free Form

Text Field for Other Pacific Islander.

#46 Race of Co-Applicant or Co-Borrower:

Conditional Free Form Text Field for Code 1

to Race of Co-Applicant or Co-Borrower: Free

Form Text Field for American Indian or Alaska

Native Enrolled or Principal Tribe.

#47 Race of Co-Applicant or Co-Borrower:

Conditional Free Form Text Field for Code 27

to Race of Co-Applicant or Co-Borrower: Free

Form Text Field for Other Asian.

#48 Race of Co-Applicant or Co-Borrower:

Conditional Free Form Text Field for Code 44

to Race of Co-Applicant or Co-Borrower: Free

Form Text Field for Other Pacific Islander.

6. Section 3.4, Table 2 Updated descriptions for the following data fields: #19 Ethnicity of Applicant or Borrower: 1.

#24 Ethnicity of Applicant or Borrower: Free

Form Text Field for Other Hispanic or Latino.

#25 Ethnicity of Co-Applicant or Co-Borrower:

1.

#30 Ethnicity of Co-Applicant or Co-Borrower:

Free Form Text Field for Other Hispanic or

Latino.

#33 Race of Applicant or Borrower: 1.

#38 Race of Applicant or Borrower: Free Form

Text Field for American Indian or Alaska

Native Enrolled or Principal Tribe.

Oct 2017 88

Date Version Section Changes

#39 Race of Applicant or Borrower: Free Form

Text Field for Other Asian.

#40 Race of Applicant or Borrower: Free Form

Text Field for Other Pacific Islander.

#41 Race of Co-Applicant or Co-Borrower: 1.

#46 Race of Co-Applicant or Co-Borrower:

Free Form Text Field for American Indian or

Alaska Native Enrolled or Principal Tribe.

#47 Race of Co-Applicant or Co-Borrower:

Free Form Text Field for Other Asian.

#48 Race of Co-Applicant or Co-Borrower:

Free Form Text Field for Other Pacific

Islander.

7. Section 3.4, Table 2, and Section 4.2.2 Added Code 7777 to the following data fields: #62 Credit Score of Applicant or Borrower.

#63 Credit Score of Co-Applicant or Co-

Borrower.

8. Section 3.4, Table 2 Updated examples for the following data fields: #76 Discount Points.

#77 Lender Credits.

9. Section 4.2.2 Updated the example for loan amount.

10. Section 4.2.2 Updated instructions for the following: 1.f. Ethnicity of Applicant or Borrower.

2. Ethnicity Free Form Text Field for Other

Hispanic or Latino.

1.f. Race of Applicant or Borrower.

2. Race Free Form Text Field for American

Indian or Alaska Native Enrolled or Principal

Tribe.

3. Race Free Form Text Field for Other Asian.

4. Race Free Form Text Field for Other Pacific

Islander.

c. Rate Spread.

1.a.i. Credit Score of Applicant or Borrower.

1.c. Credit Score of Applicant or Borrower.

2.a.i. Name and Version of Credit Scoring

Model.

Oct 2017 89

Date Version Section Changes

11. Section 5.2, Table 3. Created Revised Edits Table.

12. Section 5.3, Table 6.

Changed data point name from “ULI” to “Applicable

to all data fields” in edit S305.

13. Section 5.3, Table 6.

Updated valid values in V612 and V614 to include

Code 5.

14. Section 5.3, Table 6.

Updated allowable reporting of Ethnicity and

Race in V628, V631, V635 and V638.

Updated the names of the free form text data

fields.

15. Section 5.3, Table 6.

Removed edit V653.

16. Section 5.3, Table 6.

Modified condition two in V672 to remove “and

the reverse must be true.”

Added condition five in V673.

17. Section 5.3, Table 6.

Updated the valid values in V691 by removing NA.

18. Section 5.3, Table 7.

Updated valid values in Q613 to include Code 5.

19. Section 5.3, Table 7.

Added Q642 to address non-numeric credit scores.

July 2017 3.0

3. 2018 File

Specifications;

4. 2018 Data

Specifications;

and

5. 2018 Edit

Specifications

1. Section 3.4, Table 1.

Updated example for Contact Person’s Office State.

2. Section 3.4, Table 1.

Updated example for Contact Person’s Office ZIP

Code.

3. Section 3.4, Table 1; Section 3.4, Table 2;

Section 4.2.1; and Section 4.2.2.

Updated examples for LEI and ULI.

4. Section 3.4, Table 2, and Section 4.2.2.

Updated example for Loan Amount.

5. Section 3.4, Table 2; and Section 4.2.2.

Oct 2017 90

Date Version Section Changes

Updated example and data point for State.

6. Section 3.4, Table 2, and Section 4.2.2.

Updated example for ZIP Code.

7. Section 4.2.2.

Updated URL for check digit reference.

8. Section 4.2.2.

Updated instructions and numbering for 1. Ethnicity

of Applicant or Borrower (b).

9. Section 4.2.2.

Updated instructions and numbering for 1. Race of

Applicant or Borrower (b).

10. Section 4.2.2.

Updated instructions for entering Mortgage Loan

Originator NMLSR Identifier.

11. Section 5, 2018 Edit Specifications. Publication of edits for data collected in 2018.

January

2017 2.1

3. 2018 File

Specifications

and

4. 2018 Data

Specifications

1. Section 3.4, Table 2, and Section 4, 2018

Data Specifications.

Character width has been increased for the

following data fields:

#24 Ethnicity of Applicant or Borrower:

Conditional Free Form Text Field for Code 14.

Width up to 100 characters.

#30 Ethnicity of Co-Applicant or Co-Borrower:

Conditional Free Form Text Field for Code 14.

Width up to 100 characters.

#38 Race of Applicant or Borrower:

Conditional Free Form Text Field for Code 1.

Width up to 100 characters.

#39 Race of Applicant or Borrower:

Conditional Free Form Text Field for Code 27.

Width up to 100 characters.

#40 Race of Applicant or Borrower:

Conditional Free Form Text Field for Code 44.

Width up to 100 characters.

#46 Race of Co-Applicant or Co-Borrower:

Conditional Free Form Text Field for Code 1.

Width up to 100 characters.

#47 Race of Co-Applicant or Co-Borrower:

Oct 2017 91

Date Version Section Changes

Conditional Free Form Text Field for Code 27.

Width up to 100 characters.

#48 Race of Co-Applicant or Co-Borrower:

Conditional Free Form Text Field for Code 44.

Width up to 100 characters.

#65 Applicant or Borrower, Name and Version

of Credit Scoring Model: Conditional Free

Form Text Field for Code 8. Width up to 100

characters.

#67 Co-Applicant or Co-Borrower, Name and

Version of Credit Scoring Model: Conditional

Free Form Text Field for Code 8. Width up to

100 characters.

#72 Reason for Denial: Conditional Free Form

Text Field for Code 9. Width up to 255

characters.

2. Section 3.4, Table 2

Added “co-“ to the Descriptions and Examples

column for the following data fields:

#46 Race of Co-Applicant or Co-Borrower:

Conditional Free Form Text Field for Code 1.

#47 Race of Co-Applicant or Co-Borrower:

Conditional Free Form Text Field for Code 27.

Width up to 100 characters. #48 Race of Co-Applicant or Co-Borrower:

Conditional Free Form Text Field for Code 44.

July

2016 2.0 All

Publication of the Filing Instructions Guide and its

components, including File Specifications as

revised.

January

2016 1.0

File

Specifications Original Document

Oct 2017 92

HMDA Filing

When will the HMDA Platform be available to users?The HMDA Platform is expected to be available in the third quarter of 2017, and will be accessible throughthe Resources for HMDA filers page.

How can I sign up for a user account to access the HMDA Platform?The process to register online for login credentials and establish an account is expected to be available inthe third quarter of 2017, when the HMDA Platform is released.

How can I sign up to be notified of any future updates to the Resourcesfor HMDA filers page?To be notified of any future updates, please visit the Home Mortgage Disclosure Act rule implementationwebpage, and provide an email address at the bottom of the page to sign up for updates about mortgagerule implementation.

What geography boundaries are used for HMDA data collected in2017?

Return to consumerfinance.gov An official website of the United States Government

Home About HMDA Resources for filers Explore the data Public API

Frequently Asked Questions

Oct 2017 93

The Metropolitan Statistical Area/Metropolitan Division (MSA/MD) boundaries aredefined by the MSA/MD boundaries effective January 1, 2017.The census tract boundaries are defined by the 2010 U.S. Census.The county boundaries are defined by the 2010 U.S. Census.

How do I submit HMDA data collected in 2016?There are no changes to the submission process for HMDA data collected by financial institutions in 2016.Financial institutions will file HMDA data with the Federal Reserve Board (FRB) using the FRB’sinstructions, file specifications, and edits familiar to HMDA users. Please visit the FFIEC website forresources to help you file.

How do I submit HMDA data collected in or after 2017?There is a new data submission process beginning with HMDA data collected by financial institutions in orafter 2017. Financial institutions will file HMDA data with the Consumer Financial Protection Bureau(CFPB). The HMDA agencies have agreed that filing HMDA data collected in or after 2017 with the CFPBwill be deemed submission to the appropriate Federal agency. Please refer to the FFIEC and the CFPBwebsites for resources to help you file.

How do I resubmit HMDA data collected in or after 2017?There is a new data resubmission process beginning with HMDA data collected by financial institutions inor after 2017. Financial institutions will resubmit HMDA data collected in or after 2017 by filing with theConsumer Financial Protection Bureau (CFPB). Please refer to the FFIEC and the CFPB websites forresources to help you file.

What type of browser do I need in order to use the CFPB’s HMDAPlatform?We recommend that HMDA filers use a modern browser, such as the latest version of Google Chrome orMozilla Firefox, Internet Explorer 11, Microsoft Edge, or other modern browsers.

What is a variable-width, pipe delimited text file?

1. A pipe delimited text file is a file containing multiple data fields separated by a pipecharacter, “|”, to distinguish where each data field starts and ends. Files are stored in plaintext as numbers and letters with one record per line.

2. Data fields will vary in width, depending on the response.Oct 2017 94

3. To leave a data field blank, as permitted in some cases by Regulation C and the FilingInstructions Guide (FIG), enter two consecutive pipes with no spaces in between the pipes,like this “||”.

4. A pipe delimited text file for data collected in 2017 should look like this :

a. In a HMDA file, the first row begins with a “1”. All subsequent rows will beginwith a “2”.

b. As the example demonstrates, depending on the data field, information canbe of different lengths.

c. Blank data fields are indicated by two consecutive pipes.

Can I use the HMDA Data Entry Software (DES) for data collected in orafter 2017?No. Data collected by financial institutions in or after 2017 will be filed online with the CFPB. The DES willcontinue to be used only for data collected in or before 2016. Please refer to the FFIEC and the CFPBwebsites for resources to help you file.

Where can I find the file specifications and edit specifications for HMDAdata collected in or after 2017?The Filing Instructions Guide (FIG) at the CFPB website contains the file specifications, edit specifications,and additional resources to help you file HMDA data collected in or after 2017.

How do I obtain an edit report for data collected in or after 2017?The HMDA Platform will generate an edit report for your loan/application register prior to submission. TheHMDA Platform requires filers to address all edits before allowing the loan/application register to be filed.The HMDA Platform will allow you to check your HMDA filing as many times as you would like prior tofiling the final loan/application register with the Consumer Financial Protection Bureau.

Can I submit HMDA data by the March 1st deadline with outstandingedits?

1

1 This example is provided for illustrative purposes only and does not represent all the data fields reported in a row within

the loan/application register.

Oct 2017 95

No. Beginning with the data collected in 2017, you will no longer be able to submit your HMDA datawithout correcting or validating all edits. All syntactical and validity edits must be corrected and quality andmacro quality edits must be corrected or validated before you can file your HMDA data to the ConsumerFinancial Protection Bureau.

How do I know if my data has been received and processed by theConsumer Financial Protection Bureau?After you file, you will receive a confirmation receipt. Beginning with the data you collected in 2017, theCFPB’s HMDA Platform will not allow you to submit your loan/application register without addressing alledits and having an authorized representative of your institution with knowledge of the submitted datacertify to the accuracy and completeness of the data.

Where can I find additional information about the HMDA Regulation Cand filing my HMDA data?

On October 15, 2015, the Consumer Financial Protection Bureau issued a final rule(2015 HMDA Rule ) amending Regulation C. Additional resources to help institutionsunderstand and comply with the 2015 HMDA Rule are available on the CFPB website.Technical questions about reporting HMDA data collected in or after 2017 should bedirected to hmdahelp@cfpb.gov.Technical questions about reporting HMDA data collected in or after 2016 should bedirected to hmdahelp@frb.gov.

HMDA Platform Tools

I need help formatting HMDA data into a pipe delimited text file. Isthere a tool that can help?Yes. Many Loan Origination Software (LOS) systems, in addition to vendor HMDA software, can produce apipe delimited text file for submission to the CFPB’s HMDA Platform. Microsoft Access or Excel mayalso be used for data entry and formatting.

The CFPB also provides a Loan/Application Register (LAR) Formatting Tool into which filers can entertheir HMDA data. This will produce a pipe delimited text file that can be submitted to the HMDA Platform.The filer can then proceed through the HMDA Platform to submit the LAR. This tool may be especially

® ® ®

Oct 2017 96

helpful for filers with small volumes of covered loans and applications.

I am using a MAC computer. Can I use the CFPB’s 2017 LARFormatting Tool?No. The CFPB’s 2017 LAR Formatting Tool requires the use of the Microsoft Visual Basic forApplications (VBA). VBA functionality is not supported on computers using operating systems other thanWindows .

Will the CFPB’s 2017 LAR Formatting Tool check the entered data forany HMDA edits?No. The CFPB’s 2017 LAR Formatting Tool is intended only to format HMDA data into a pipe delimitedtext file format. HMDA edits can be checked once the file has been uploaded to the HMDA Platform.

Do I select the “Create LAR File” button after each line entry, or whenall data have been entered for the data collection year?For submission to the HMDA Platform, the “Create LAR File” button is selected after all data have beenentered for the data collection year, so that all HMDA data will be included in a single file that can beuploaded into the HMDA Platform.

Nothing happens when I select the “Create LAR File” button. How do Iexport my data?The macro, or code, that instructs the worksheet to export the information needs to be enabled for earlierversions of Microsoft Excel . Please refer to Appendix A: Enabling macros for Microsoft Excel 2002and 2003 in the Instructions for HMDA LAR Formatting Tool.

When I type data into the 2017 LAR Formatting Tool that begins with azero “0”, the zero “0” disappears from that data field. How do I formatthe data so that it begins with a leading zero “0”?For data that begin with zero “0”, you must enter a single quotation mark as the first character in the cell.For example, for the Respondent ZIP Code 00123, enter ‘00123 in cell K3 on the “Data” worksheet.

Do I need to add a pipe, “|” in each cell of the 2017 LAR Formatting

®

® ®

®

® ® ® ®

Oct 2017 97

Tool?No. Enter your data only, without pipes or commas, into the respective cells on the “Data” worksheet. Thepipes separating each data field will be added to the text file once you select the “Create LAR file” button.

In the 2017 LAR Formatting Tool, can I modify the data once it isentered in the “Data” worksheet?Yes. Data entered in the “Data” worksheet can be modified any time prior to selecting the “Create LAR File”button to format the data into a pipe delimited text file.

Will the “Data” worksheet remove duplicates?No. The macro, or code, only instructs the worksheet to format the data into a pipe delimited text file.Duplicates will not be automatically removed.

How do I save the HMDA_2017_LAR_Formatting_Tool.xlsm into a textfile?Select the “Create LAR File” button, and a separate text file will be created. If you would like to save theHMDA_2017_LAR_Formatting_Tool.xlsm file and update it throughout the year, or to use it as areference, please refer to Section 2, step 13 of the Instructions for HMDA LAR Formatting Tool for how tosave the workbook.

Can I save different versions of the pipe delimited text file?Yes. Select “Create LAR File” and a prompt to save the file will appear. Enter the file name and version, asapplicable, and save the file type as “Text Files” format.

Can I save the workbook on my computer and enter information in thefile throughout the year?Yes. You can save the 2017 LAR Formatting Tool onto your computer and access it throughout the year.Please refer to Section 2, step 13 of the Instructions for HMDA LAR Formatting Tool for how to save thefile.

When I export my data into the pipe delimited text file, double quotesappear around certain rows of my data. Is that the correct format?

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No. The double quotes appear around the data because there is a comma “,” within a data field in thatspecific row. Please remove the comma from the data field and re-export your HMDA data by selecting the“Create LAR File” button.

What should I do if the data I entered into the “Data” spreadsheet is notdisplayed in the text file?Verify the following:

The Respondent ID is entered in each row where there is data.The data were entered in consecutive rows, without skipping rows. The embedded codein the 2017 LAR Formatting Tool will stop extracting data upon encountering the firstblank row of the LAR. Therefore, any data entered after the blank row in the LAR willnot be extracted.

Once these issues have been resolved, please select the “Create LAR File” button to extract the data.

Can I print the data that I entered into the 2017 LAR Formatting Tool?Due to the width of the “Data” worksheet, the data is best viewed using a computer. However, the “Data”worksheet can be printed on paper sizes 8.5” x 14” or 11” x 17”. You can also print the pipe delimited text filefor your records.

Can I use the same 2017 LAR Formatting Tool for the data collected in2018?No. The 2017 LAR Formatting Tool is only for use for data collected in 2017. Since additional data pointswill be collected in 2018, a separate LAR Formatting Tool will be released at a later date that can be usedfor data collected in 2018.

How do I know my HMDA file is formatted correctly? Is there a tool thatcan help?Yes, the CFPB provides the File Format Verification Tool. HMDA filers can use the tool to test whether theirfile meets certain formatting requirements provided in the Filing Instructions Guide for HMDA datacollected in 2017. The web-based tool is for filers’ convenience and is not part of the HMDA filing process.It does not transfer any data to the CFPB.

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Where can I find the check digit tool?The check digit tool is expected to be available in the fourth quarter of 2017, and will be accessible throughthe Resources for HMDA filers page.

consumerfinance.gov | Contact us | Newsroom | Jobs |

Open government

Privacy policy and legal noticesAccessibilityPlain writingNo FEAR Act

FOIAUSA.govOffice of Inspector GeneralOmbudsman

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HMDA Loan Scenarios Hypothetical Transactions for HMDA Reporting

Oct 2017 101

Version log The following is a version log that tracks the history of this document and its updates:

Date Version Section Changes

August 2017 1.3

1. Scenario 1: Single-Family

Closed-End Purchase Loan

4. Comparison Synopsis

1. Section 1.1 Data field #24, updated data field name. Data field #30, updated data field name.

Data field #38, updated data field name. Data field #39, updated data field name. Data field #40, updated data field name.

Data field #46, updated data field name. Data field #47, updated data field name. Data field #48, updated data field name.

2. Section 4 Data field #24, updated data field name. Data field #30, updated data field name.

Data field #38, updated data field name. Data field #39, updated data field name. Data field #40, updated data field name.

Data field #46, updated data field name. Data field #47, updated data field name.

Data field #48, updated data field name.

July 2017 1.2

1. Scenario 1: Single-Family

Closed-End Purchase Loan

4. Comparison Synopsis

1. Section 1.1 Data field #76, Discount Points: “0” was

removed. Data field #77, Lender Credits: “0” was

removed.

2. Section 1.2 Pipe Delimited File Format was updated with the

changes noted above.

3. Section 4 Data field #76, Discount Points in Origination

Scenario: “0” was removed.

Data field #77, Lender Credits in Origination

Scenario: “0” was removed.

July 2017 1.1

3. Scenario 3:

Open-end line of credit;

4. Comparison

Synopsis

1. Section 3.1

Data field #96, Automated Underwriting System: 1 was modified from “NA” to “6”.

Data field #102, Automated Underwriting

System Result: 1 was modified from “NA” to

Oct 2017 102

Date Version Section Changes

“17’. 2. Section 3.2

Data field #96, Automated Underwriting System: 1 was modified from “NA” to “6”.

Data field #102, Automated Underwriting

System Result: 1 was modified from “NA” to “17”.

3. Section 4, Open-end line of credit scenario

Data field #96, Automated Underwriting System: 1 was modified from “NA” to “6”.

Data field #102, Automated Underwriting

System Result: 1 was modified from “NA” to

“17”.

July 2017 1.0 Original Document

Oct 2017 103

Table of contents

Version log ................................................................................................................... 1

Table of contents ......................................................................................................... 3

Introduction ................................................................................................................. 4

1. Scenario 1: Single-Family Closed-End Purchase Loan ..................................... 6

Data mapping information for Scenario 1 ................................................ 8 1.1

Pipe Delimited File Format for Scenario 1 .............................................. 11 1.2

2. Scenario 2: Non-Natural Person, Multifamily Purchase Loan ........................ 12

Data mapping that will change for non-natural person, multifamily 2.1scenario as compared to origination scenario 1 based on the storyline 13

Pipe Delimited File Format for Scenario 2 ..............................................15 2.2

3. Scenario 3: Open-end line of credit ................................................................. 16

Data mapping that will change for open-end scenario 3 as compared to 3.1origination scenario 1 based on the storyline ......................................... 17

Pipe Delimited File Format for Scenario 3 ............................................. 18 3.2

4. Comparison Synopsis ........................................................................................ 19

5. Additional HMDA Resources ............................................................................. 26

HMDA Implementation Guidance ......................................................... 26 5.1

HMDA Technology Information for Filers ............................................. 27 5.2

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4. Comparison Synopsis This is a comparison of the reported values, highlighting the changes to illustrate the differences

among the previous scenarios.

Data Field #

Data Field Name Origination scenario

Non-natural person, multifamily scenario

Open-end line of credit scenario

1 Record Identifier 2 2 2

2 Legal Entity Identifier (LEI)

10Bx939c5543TqA1144M

10Bx939c5543TqA1144M

10Bx939c5543TqA1144M

3 Universal Loan Identifier (ULI)

10Bx939c5543TqA1144M999143X38

10Bx939c5543TqA1144M999143X38

10Bx939c5543TqA1144M999143X38

4 Application Date 20180721 20180721 20180721 5 Loan Type 1 1 1 6 Loan Purpose 1 1 2 7 Preapproval 2 2 2

8 Construction Method

1 1 1

9 Occupancy Type 1 3 1 10 Loan Amount 162000 585000 40000 11 Action Taken 1 1 1 12 Action Taken Date 20180912 20180912 20180912 13 Street Address 456 Somewhere Ave 456 Somewhere Ave 456 Somewhere Ave 14 City Los Angeles Los Angeles Los Angeles 15 State CA CA CA 16 ZIP Code 90049 90049 90049 17 County 06037 06037 06037 18 Census Tract 06037264000 06037264000 06037264000

19 Ethnicity of Applicant or Borrower: 1

12 4 12

20 Ethnicity of Applicant or Borrower: 2

21 Ethnicity of Applicant or Borrower: 3

22 Ethnicity of Applicant or Borrower: 4

23 Ethnicity of Applicant or Borrower: 5

24

Ethnicity of Applicant or Borrower: Free Form Text Field for Other Hispanic or Latino

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Data Field #

Data Field Name Origination scenario

Non-natural person, multifamily scenario

Open-end line of credit scenario

25 Ethnicity of Co-Applicant or Co-Borrower: 1

2 5 2

26 Ethnicity of Co-Applicant or Co-Borrower: 2

27 Ethnicity of Co-Applicant or Co-Borrower: 3

28 Ethnicity of Co-Applicant or Co-Borrower: 4

29 Ethnicity of Co-Applicant or Co-Borrower: 5

30

Ethnicity of Co-Applicant or Co-Borrower: Free Form Text Field for Other Hispanic or Latino

31

Ethnicity of Applicant or Borrower Collected on the Basis of Visual Observation or Surname

2 3 2

32

Ethnicity of Co-Applicant or Co-Borrower Collected on the Basis of Visual Observation or Surname

2 4 2

33 Race of Applicant or Borrower: 1

5 7 5

34 Race of Applicant or Borrower: 2

35 Race of Applicant or Borrower: 3

36 Race of Applicant or Borrower: 4

37 Race of Applicant or Borrower: 5

38

Race of Applicant or Borrower: Free Form Text Field for American Indian or Alaska Native Enrolled or Principal Tribe

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Data Field #

Data Field Name Origination scenario

Non-natural person, multifamily scenario

Open-end line of credit scenario

39

Race of Applicant or Borrower: Free Form Text Field for Other Asian

40

Race of Applicant or Borrower: Free Form Text Field for Other Pacific Islander

41 Race of Co-Applicant or Co-Borrower: 1

41 8 41

42 Race of Co-Applicant or Co-Borrower: 2

43 Race of Co-Applicant or Co-Borrower: 3

44 Race of Co-Applicant or Co-Borrower: 4

45 Race of Co-Applicant or Co-Borrower: 5

46

Race of Co-Applicant or Co-Borrower: Free Form Text Field for American Indian or Alaska Native Enrolled or Principal Tribe

47

Race of Co-Applicant or Co-Borrower: Free Form Text Field for Other Asian

48

Race of Co-Applicant or Co-Borrower: Free Form Text Field for Other Pacific Islander

49

Race of Applicant or Borrower Collected on the Basis of Visual Observation or Surname

2 3 2

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Data Field #

Data Field Name Origination scenario

Non-natural person, multifamily scenario

Open-end line of credit scenario

50

Race of Co-Applicant or Co-Borrower Collected on the Basis of Visual Observation or Surname

2 4 2

51 Sex of Applicant or Borrower

1 4 1

52 Sex of Co-Applicant or Co-Borrower

2 5 2

53

Sex of Applicant or Borrower Collected on the Basis of Visual Observation or Surname

2 3 2

54

Sex of Co-Applicant or Co-Borrower Collected on the Basis of Visual Observation or Surname

2 4 2

55 Age of Applicant or Borrower

39 8888 39

56 Age of Co-Applicant or Co-Borrower

32 9999 32

57 Income 123 NA 123 58 Type of Purchaser 1 3 0 59 Rate Spread 0.42839 NA 0.42840 60 HOEPA Status 2 3 2 61 Lien Status 1 1 2

62 Credit Score of Applicant or Borrower

794 8888 794

63 Credit Score of Co-Applicant or Co-Borrower

803 9999 803

39 This is a hypothetical rate spread not based on actual average prime offer rate (APOR). 40 This is a hypothetical rate spread not based on actual average prime offer rate (APOR).

Oct 2017 108

Data Field #

Data Field Name Origination scenario

Non-natural person, multifamily scenario

Open-end line of credit scenario

64

Applicant or Borrower, Name and Version of Credit Scoring Model

2 9 2

65

Applicant or Borrower, Name and Version of Credit Scoring Model: Conditional Free Form Text Field for Code 8

66

Co-Applicant or Co-Borrower, Name and Version of Credit Scoring Model

6 10 6

67

Co-Applicant or Co-Borrower, Name and Version of Credit Scoring Model: Conditional Free Form Text Field for Code 8

68 Reason for Denial: 1

10 10 10

69 Reason for Denial: 2

70 Reason for Denial: 3

71 Reason for Denial: 4

72

Reason for Denial: Conditional Free Form Text Field for Code 9

73 Total Loan Costs 5672 NA NA

74 Total Points and Fees

NA NA NA

75 Origination Charges

1802 NA NA

76 Discount Points NA NA 77 Lender Credits NA NA 78 Interest Rate 3.875 3.875 3.875

79 Prepayment Penalty Term

NA NA NA

80 Debt-to-Income Ratio

42 NA 42

81 Combined Loan-to-Value Ratio

80 59 80

Oct 2017 109

Data Field #

Data Field Name Origination scenario

Non-natural person, multifamily scenario

Open-end line of credit scenario

82 Loan Term 360 360 240

83 Introductory Rate Period

NA NA 12

84 Balloon Payment 2 2 2

85 Interest-Only Payments

2 2 2

86 Negative Amortization

2 2 2

87 Other Non-amortizing Features

2 2 2

88 Property Value 202500 985500 202500

89 Manufactured Home Secured Property Type

3 3 3

90 Manufactured Home Land Property Interest

5 5 5

91 Total Units 1 10 1

92 Multifamily Affordable Units

NA 5 NA

93 Submission of Application

1 1 1

94 Initially Payable to Your Institution

1 1 1

95 Mortgage Loan Originator NMLSR Identifier

12345 12345 12345

96 Automated Underwriting System: 1

1 6 6

97 Automated Underwriting System: 2

98 Automated Underwriting System: 3

99 Automated Underwriting System: 4

100 Automated Underwriting System: 5

101

Automated Underwriting System: Conditional Free Form Text Field for Code 5

Oct 2017 110

Data Field #

Data Field Name Origination scenario

Non-natural person, multifamily scenario

Open-end line of credit scenario

102 Automated Underwriting System Result: 1

1 17 17

103 Automated Underwriting System Result: 2

104 Automated Underwriting System Result: 3

105 Automated Underwriting System Result: 4

106 Automated Underwriting System Result: 5

107

Automated Underwriting System Result: Conditional Free Form Text Field for Code 16

108 Reverse Mortgage 2 2 2

109 Open-End Line of Credit

2 2 1

110 Business or Commercial Purpose

2 1 2

Oct 2017 111

IntroductionFor HMDA data collected in or after 2017, a web-based data submission and edit-check system (the HMDAPlatform) is being created to process Home Mortgage Disclosure Act (HMDA) data. It is expected that theHMDA Platform will streamline the HMDA submission process and reduce burden on HMDA filers.

This webpage is intended to provide an initial view into the way HMDA filers will interact with the HMDAPlatform. Additionally, this webpage describes resources that will be available for filers, developers, and theinterested public. This webpage will be updated on an ongoing basis, to keep stakeholders informed of newdevelopments.

Interacting with the HMDA PlatformThe HMDA Platform will be available online only and will guide filers through the entire filing process,including the review of any edits and the certification of the accuracy and completeness of theloan/application register (LAR). A separate Filing Instructions Guide (FIG) describes the file format andother requirements.

User accountsThe HMDA Platform will require every HMDA filer to register online for login credentials and establish anaccount prior to using the system. For institutions that have previously filed HMDA data, an authorizedrepresentative of the financial institution can complete the process online. When new HMDA filers accessthe HMDA Platform, they will be directed to HMDA Help for further assistance in setting up their accounts.

Once established, a HMDA filer’s account will allow a financial institution to upload its LAR, check onwhich stage it is in within the filing process, complete the review and verification steps, and submit the

Return to consumerfinance.gov An official website of the United States Government

Home About HMDA Resources for filers Explore the data Public API

Technology Preview

Oct 2017 112

LAR.

An individual can be authorized by more than one financial institution to file HMDA data on thoseinstitutions’ behalf, provided that under Regulation C, each such institution is a HMDA filer. Furthermore,each financial institution may have multiple users. During the registration process, a user indicates theinstitution(s) on behalf of which the user is authorized to file.

The Consumer Financial Protection Bureau (CFPB) will provide specific details on the registration processin a future update.

Submitting a LARThe HMDA Platform will allow the filer to select the appropriate LAR from a local or network file system.This must be a single file that contains the entire LAR for the filer; the HMDA Platform will not allow usersto combine multiple files. The newly-uploaded LAR will supersede any previously uploaded LAR for whichthe filer did not complete the submission process.

The HMDA Platform will confirm the upload of the selected LAR, check that it is pipe delimited, and hasthe correct number of data fields (see FIG sec 3). If the LAR is not properly formatted, the HMDA Platformwill display an error message and require the HMDA filer to correct and refile the LAR.

HMDA editsOnce the HMDA Platform confirms that the LAR is in the correct format, it will check the accuracy andcompleteness of the LAR using the HMDA edits. An interactive process will inform the filer of the currentstage of review, any items that need to be addressed, and next steps for completing the HMDA filing. Ateach stage, any edits identified in the LAR will be reported to the filer.

For data collected in 2017, the edits are listed in Section 4 of the FIG for HMDA data collected in 2017.Edits for data collected in 2018 will be released at a later date.

Syntactical and validity edit review

The HMDA Platform will identify any syntactical or validity edit and the rows in the LAR where each edit istriggered. Additionally, a list of the edits identified in the LAR will be available for download.

Syntactical and validity edits must all be addressed prior to moving forward with the filing process. If thefiler needs to correct any data, the filer must refile the updated LAR to the HMDA Platform. The LAR willthen be rechecked for syntactical and validity edits.

Quality and macro quality edit review

Once the HMDA Platform has confirmed there are no syntactical or validity edits, the filer will be promptedto review any quality and/or macro quality edits that the HMDA Platform identifies in individual rows inthe LAR, groups of rows, or the entire LAR. The filer must confirm the accuracy of the data flagged by the

Oct 2017 113

quality and/or macro quality edits. If a filer needs to correct any data in the file in response to qualityand/or macro edits, the filer must correct the data and refile the updated LAR to the HMDA Platform.

Final validation steps

Once all edits have been addressed, the HMDA Platform will require an authorized representative of thefiler’s institution to certify the completeness and accuracy of the LAR (see FIG section 3.2).

It is important to recall that all edits must be resolved prior to the March 1st annual HMDA submissiondeadline. Filers are encouraged to allow sufficient time, prior to the filing deadline, in order to address anyedits. The submission must be completed by the March 1st annual deadline.

Complete a HMDA submissionAfter the filer submits the LAR, the HMDA Platform will provide the filer with a summary screenacknowledging the time and date of submission.

Resubmitting HMDA dataIn cases where a submission has been completed and the filer wants to refile, the HMDA Platform will alertthe filer that the LAR for the reporting year has already been filed, and prompt the filer to confirm that theywish to refile their LAR.

A HMDA resubmission requires the same edit review and certification by the institution’s authorizedrepresentative as with the previous submission.

Other tools for HMDA filersGeocoding

A new online geocoding tool will be provided that identifies the census tract for a single address or batchesof addresses. Further information will be forthcoming.

Loan/Application Register (LAR) Formatting Tool

Beginning with the HMDA data collected in 2017, the Data Entry Software currently provided by the FFIEC(DES) will no longer be available as a method of data entry or data submission.

Some financial institutions, typically those with small volumes of covered loans and applications, thatcurrently manually enter each loan into the DES for submission, will need a software solution to create anelectronic file that can be submitted to the new HMDA Platform.

Many solutions exist to create the electronic file. For example:

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A financial institution’s current Loan Origination Software (LOS) may meet this need.Software commonly available on desktop computers such as Microsoft Access orExcel may also be used for data entry and formatting.

In addition, the CFPB has published a Microsoft Excel HMDA LAR data entry formatting tool. This toolwill help filers enter and format their HMDA data into a pipe delimited text file needed to submit the datato the CFPB’s HMDA Platform. Please visit the LAR Formatting Tool webpage for more information.

File Format Verification ToolThe CFPB has made available an electronic File Format Verification Tool (FFVT) for filers who wish toconfirm that a LAR is formatted in the required pipe delimited text file format, and meets certainformatting requirements specified in the Filing Instructions Guide. The FFVT uses “client-side testing”which runs on the user’s computer and does not transmit any HMDA data over the internet. The toolconducts the same initial checks that the future HMDA Platform will perform, and provides a convenienttest mechanism for filers, prior to the roll out of the full HMDA Platform.

Open source policyThe CFPB is committed to developing the programming code for the HMDA Platform in an open way. TheHMDA Platform is being actively developed on the site, GitHub.com (see: https://github.com/cfpb/hmda-platform). This provides transparency to the algorithms and methodologies used to parse and validate aHMDA file, as well as the code used to develop the HMDA Platform user interface and related tools forfilers. This code is in the public domain and does not impact the privacy or security of the data.

Resources for developersAs noted above, the CFPB is developing the HMDA Platform in the open. With the exception of internalserver deployment details, the source code will be available to review and use.

While most HMDA filers and interested members of the public will interact with the HMDA Platformprimarily through the web, the HMDA Platform is developed with an API-first approach, with a modernarchitecture intended to be efficient and flexible.

Details of public APIs and other developer resources will be released on the Resources for Filers page onthe CFPB website and on GitHub.

® ®

®

® ®

Oct 2017 115

1700 G Street NW, Washington, DC 20552

August 24, 2017

Executive Summary of the Home Mortgage Disclosure Act (Regulation C), Final Rule The Consumer Financial Protection Bureau (Bureau) has issued a final rule (2017 HMDA Final Rule) amending the 2015 Home Mortgage Disclosure Act Final Rule (Regulation C) (2015 HMDA Final Rule).1 The amendments included in the 2015 HMDA Final Rule take effect on January 1, 2018, January 1, 2019 and January 1, 2020. This document summarizes some of the 2017 HMDA Final Rule’s changes to Regulation C. Although this executive summary provides a high-level overview of the 2017 HMDA Final Rule, it is not a substitute for reviewing the rule.

Background

The Bureau is amending Regulation C to make technical corrections, to clarify and make changes to certain requirements adopted by the 2015 HMDA Final Rule, which was published in the Federal Register on October 28, 2015. On April 13, 2017, the Bureau issued a proposal to amend the 2015 HMDA Final Rule, which was published in the Federal Register on April 25, 2017 (the April 2017 HMDA Proposal),2 to address technical errors, ease the burden of certain reporting requirements, and clarify some key terms. On July 14, 2017, the Bureau issued a second proposal, which was published in the

1 Home Mortgage Disclosure (Regulation C); 80 FR 66128 (Oct. 28, 2015) (2015 HMDA Final Rule).

2 April 2017 HMDA Proposal, 82 FR 19142 (Apr. 25, 2017).

Oct 2017 116

Federal Register on July 20, 2017 (the July 2017 HMDA Proposal).3 The July 2017 HMDA Proposal addressed temporary increases to the institutional and transactional coverage thresholds for open-end lines of credit.

Summary of Changes

The 2017 HMDA Final Rule:

Temporarily increases the threshold for collecting and reporting data with respect to 1.

open-end lines of credit from 100 to 500 for the 2018 and 2019 calendar years. Financial institutions originating fewer than 500 open-end lines of credit in either of the two preceding years will not be required to begin collecting such data until January 1, 2020;

Establishes a new reporting exclusion and optional reporting for certain transactions and 2.data points; and

Clarifies certain key terms defined in the 2015 HMDA Rule, including multifamily 3.dwelling and automated underwriting system, among others.

Loan-Volume Thresholds

The 2015 HMDA Final Rule established loan-volume thresholds for closed-end mortgage loans and open-end lines of credit that determine both which institutions are required to report HMDA data and the types of transactions those covered institutions must report. Only institutions that meet either the closed-end or open-end threshold are covered financial institutions, assuming that they satisfy the other institutional coverage criteria. A covered financial institution is only required to report data on its closed-end mortgage loans if it meets the closed-end threshold. Likewise, a covered financial institution is only required to report data on its open-end lines of credit if it meets the open-end threshold. The 2017 HMDA Final Rule finalizes the proposed temporary increase to the open-end threshold. Effective January 1, 2018, the open-end threshold will increase from 100 to 500 loans for a period of two years (i.e., calendar years 2018 and 2019). Financial institutions

3 July 2017 HMDA Proposal, 82 FR 33455 (July 20, 2017) See also Home Mortgage Disclosure (Regulation C), Temporary Increase in Institutional and Transactional Coverage Thresholds for Open-End Lines of Credit, https://www.consumerfinance.gov/policy-compliance/rulemaking/rules-under-development/home-mortgage-disclosure-regulation-c-temporary-increase-institutional-and-transactional-coverage-thresholds-open-end-lines-credit/.

Oct 2017 117

originating fewer than 500 open-end lines of credit in either of the two preceding years will not be required to begin collecting and reporting HMDA data on open-end lines of credit, during this period. The Bureau is not making the threshold increase for open-end lines of credit permanent at this time. Absent further action by the Bureau, effective January 1, 2020, the open-end threshold will be restored to the 2015 HMDA Final Rule level of 100 open-end lines of credit, and creditors originating between 100 and 499 open-end lines of credit will need to begin collecting and reporting HMDA data for open-end lines of credit at this time. The 2017 HMDA Final Rule also corrects a technical error to ensure that the loan-volume thresholds for transactional coverage mirror the loan-volume thresholds for institutional coverage. The 2015 HMDA Final rule established transactional thresholds under which a closed-end mortgage loan or an open ended line of credit is considered an “excluded transaction” if the financial institution did not meet the loan-volume threshold for that loan type in each of the two preceding calendar years. The 2015 HMDA Final Rule excluded these transactions from the collection, reporting and disclosure requirements. The 2017 HMDA Final Rule establishes that such loans will be excluded transactions if the institution did not meet the applicable threshold in either of the two preceding calendar years. The correction clarifies that a financial institution is not required to report a closed-end mortgage loan or an open-end line of credit, respectively, unless the institution meets the threshold for that loan type for two consecutive years. In addition, the 2017 HMDA Final Rule clarifies that financial institutions will have the option of reporting loans that are otherwise excluded from reporting requirements because the financial institution did not satisfy the loan-volume thresholds. However, if a financial institution chooses to report the excluded transactions, it is obligated to report all such applications, originations, and purchases for that calendar year.

Excluded Transactions

The 2015 HMDA Final Rule expanded Regulation C’s transactional coverage to include New York Consolidation, Extension and Modification Agreements (New York CEMA) transactions. The 2017 HMDA Final Rule creates a reporting exception for certain transactions related to New York CEMAs. As a result of these changes, covered financial institutions generally will not be required to report any preliminary transaction where a consumer receives additional funds prior to consolidation into a New York CEMA transaction. However, financial institutions will continue to be required to report the New York CEMA transaction.

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The 2017 HMDA Final Rule clarifies two categories of transactions that are excluded as temporary financing and not reported in HMDA data: (1) a construction-only loan or line of credit that is extended to a person exclusively to construct a dwelling for sale; and (2) a loan or line of credit designed to be replaced by separate permanent financing extended by any financial institution to the same borrower at a later time.

Clarification of Key Terms

The 2017 HMDA Final Rule clarifies the definition “multifamily dwelling.” The 2017 HMDA Final Rule establishes that a covered loan secured by five or more separate dwellings, which are not multifamily dwellings, in more than one location is not a loan secured by a multifamily dwelling. In addition, the 2017 HMDA Final Rule establishes that a covered loan secured by five or more separate dwellings that are located within a multifamily dwelling, but which is not secured by the entire multifamily dwelling (e.g., an entire apartment building or housing complex), is not secured by a multifamily dwelling as defined by § 1003.2(n). The 2017 HMDA Final Rule provides examples to clarify when loans are secured by multifamily dwellings. The 2017 HMDA Final Rule also clarifies the reporting requirements for home improvement loans secured by mixed-use property. The 2017 HMDA Final Rule establishes that a loan or line of credit to improve commercial space in a multifamily dwelling is not a reportable home improvement loan, but a loan or line of credit to improve commercial space in a dwelling other than a multifamily dwelling is a reportable home improvement loan. For example, a loan to improve retail space in an apartment building is not a home improvement loan and would not be reported, but a loan to improve a doctor’s office or daycare center in a single-family dwelling is a home improvement loan and would be reported. The 2017 HMDA Final Rule clarifies the meaning of “Automated Underwriting System” (AUS). An AUS is an electronic tool developed by a securitizer, Federal government insurer, or Federal government guarantor of closed-end mortgage loans or open-end lines of credit. A person is a securitizer, Federal government insurer, or Federal government guarantor of closed-end mortgage loans or open-end lines of credit, respectively, if it has ever securitized, provided Federal government insurance, or provided a Federal government guarantee for a closed-end mortgage loan or open-end line of credit. Additional guidance in the 2017 HMDA Final Rule explains that a person may be a securitizer, Federal government insurer, or Federal government guarantor even if it is not actively securitizing, insuring or guaranteeing closed-end mortgage loans or open end lines of credit at the time a financial institution uses the AUS to evaluate an application.

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The 2017 HMDA Final Rule also clarifies the meaning of income for the purpose of reporting the gross annual income relied on in making the credit decision or processing the application if a credit decision was not made. The 2017 HMDA Final Rule clarifies that a financial institution does not include as income amounts considered in making a credit decision based on factors that an institution relies on in addition to income, such as amounts derived from underwriting calculations of the potential annuitization or depletion of an applicant’s remaining assets. Actual distributions from retirement accounts or other assets that are relied on by the financial institution as income should be reported as income.

Clarification of How to Collect Race and Ethnicity Information

The 2017 HMDA Final Rule clarifies three aspects of collecting and reporting race and ethnicity information. First, the 2017 HMDA Final Rule states that an applicant is not required to select an aggregate race or ethnicity category as a precondition to selecting one of the race or ethnicity subcategories. Second, the 2017 HMDA Final Rule clarifies that an applicant may provide a particular other ethnicity or race in the free-form field, whether or not the applicant selects the “Other” ethnicity or race subcategory. The 2017 HMDA Final Rule also will permit, but not require, a financial institution to select automatically and to report the Other race or ethnicity subcategory if the applicant provides a specific other race or ethnicity in the free-form field. It further permits but does not require a financial institution to report American Indian or Alaska Native if the applicant provides only a particular American Indian or Alaska Native enrolled or principal tribe in the free-form field. Third, the 2017 HMDA Final Rule clarifies how a financial institution should report ethnicity if an applicant selects more than five ethnicity categories and subcategories combined. The instructions for reporting ethnicity will mirror the instructions for how to report more than five race categories and subcategories already set forth in the 2015 HMDA Final Rule.

Oct 2017 120

FFIEC HMDA Examiner Transaction Testing Guidelines1

The Federal Financial Institutions Examination Council (FFIEC) members (Agencies) promote compliance with federal consumer protection laws and regulations through supervisory and outreach programs.2 Among these laws and regulations are the Home Mortgage Disclosure Act (HMDA), 12 U.S.C. 2801 et seq., implemented by Regulation C, 12 C.F.R. Part 1003. HMDA requires certain financial institutions to collect, record, and report information about their mortgage lending activity. Pursuant to the FFIEC’s efforts to prescribe principles and standards for the federal examination of financial institutions and to make recommendations providing consistency and coordination in the supervision of financial institutions,3 the Agencies are issuing HMDA Examiner Transaction Testing Guidelines (Guidelines). To support the evaluation of financial institutions’ compliance with HMDA’s requirements, the Agencies’ examiners will use the Guidelines in assessing the accuracy of the HMDA data that financial institutions record and report.

The Agencies use HMDA data to support a variety of activities. For example, some Agencies use HMDA data as part of their fair lending examination process4 and other Agencies use HMDA data in conducting Community Reinvestment Act examinations.5 Moreover, HMDA disclosures provide the public with information on the home mortgage lending activities of particular reporting entities and on activity in their communities. These disclosures are used by local, state, and federal officials to evaluate housing trends and issues and by community organizations to monitor institution lending patterns. Because HMDA data serve numerous important purposes, validating the accuracy of HMDA data is a key element of the Agencies’ supervisory activities.

Used in conjunction with HMDA examination procedures, the Guidelines describe how to validate the accuracy of HMDA data collected beginning on January 1, 2018 and the circumstances in which examiners may direct institutions to correct and resubmit HMDA data.

Testing Procedures 1) To conduct HMDA transaction testing, examiners select a random sample of entries

from the financial institution’s HMDA Loan Application Register (LAR) (Total Sample) and ask the financial institution to provide the loan or application files (loan files) that correspond to the HMDA LAR sample entries. The size of the Total Sample will depend on the size of the financial institution’s HMDA LAR, as shown in Column A of the HMDA Transaction Testing Sample Sizes and Thresholds Table (HMDA Table) below.

1 These guidelines apply to HMDA data collected by financial institutions in or after 2018. 2 The FFIEC members are the Board of Governors of the Federal Reserve System, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the State Liaison Committee. 3 12 U.S.C. 3301 et seq. 4 42 U.S.C. 3601 et seq.; 15 U.S.C. 1691 et seq.; 12 C.F.R. Part 1002; and 24 C.F.R. Part 100. 5 12 U.S.C. 2901 et seq.; 12 C.F.R. Parts 25, 195, 228, and 345.

Oct 2017 121

2) If a financial institution’s HMDA data are collected through multiple data collection and reporting systems, examiners may test a single sample from the financial institution’s entire HMDA LAR, test separate samples from each system, or test samples from selected systems chosen based on risk. If examiners do not take a single sample from the entire HMDA LAR, they should document in their work papers from which system(s) they chose the sample(s) and why.

3) Once examiners receive the loan files from the financial institution, they should verify the accuracy of the data in the entries in the HMDA LAR sample(s) against the corresponding loan files. Examiners should document in their work papers any differences between the data in the HMDA LAR and information in files, and determine whether the differences may be explained by any additional information that the financial institution may provide. Differences that are not adequately explained should be identified as errors.

4) All data fields within the sample may be reviewed, or the supervisory agency may prioritize designated fields for review.

5) HMDA transaction testing can be divided into two stages. Both stages test for errors only in individual data fields that are selected for review as provided above in Paragraph 4. In Stage 1, examiners review only a subset of the sample (Initial Sample). The size of the Initial Sample will depend on the size of the financial institution’s HMDA LAR, as shown in Column B of the HMDA Table. If the number of errors identified in the Initial Sample falls below the Initial Sample Threshold in Column C of the HMDA Table for each and every data field reviewed, no further sample review is required and the examiners may conclude the transaction testing. If the number of errors in any data field reviewed equals or exceeds the Initial Sample Threshold in Column C of the HMDA Table, examiners should proceed to Stage 2 and review the remainder of the Total Sample. In Stage 2, examiners must review all data fields that had one or more errors in the Initial Sample and may review any or all Initial Sample data fields reviewed and found to have no errors in Stage 1.

6) If, after reviewing the remainder of the Total Sample in Stage 2, the total number of errors in any data field equals or exceeds the Resubmission Threshold in Column D of the HMDA Table, examiners should direct the financial institution to correct any such data field in its full HMDA LAR and resubmit its HMDA LAR with the corrected data field(s).

7) A financial institution may also be directed to correct one or more individual data fields and resubmit its HMDA LAR, even if errors in that field or fields do not meet the Resubmission Threshold in Column D of the HMDA Table, if examiners have a reasonable basis to believe that errors in that field or fields will likely make analysis of the HMDA data unreliable. To illustrate, assume examiners discover that a financial institution has incorrectly coded withdrawn applications as denials to such an extent that it likely prevents reliable analysis of underwriting disparities in a fair lending examination. Examiners may direct a financial institution to correct the Action Taken data field and resubmit the HMDA LAR even if the number of Action Taken errors found in the Total Sample does not equal or exceed the Resubmission Threshold in Column D in the HMDA Table.

Oct 2017 122

8) A financial institution may be directed to resubmit its HMDA LAR in order to include reportable applications or loans that examiners determine were previously omitted from the HMDA LAR.

Tolerances 9) For the sole purpose of determining whether the number of errors equals or exceeds the

Initial Sample Threshold in Column C or the Resubmission Threshold in Column D of the HMDA Table, examiners should not count the following differences between data in the HMDA LAR and in the loan files as errors:

• Three calendar days or less in the date the application was received or the date shown on the application form reported pursuant to 12 CFR 1003.4(a)(1)(ii);

• One thousand dollars or less in the amount of the covered loan or the amount applied for, as applicable, reported pursuant to 12 CFR 1003.4(a)(7);

• Three calendar days or less in the date of the action taken by the financial institution reported pursuant to 12 CFR 1003.4(a)(8)(ii), provided that such differences do not result in reporting data for the wrong calendar year; and

• Rounding errors in reporting the dollar amount, rounded to the nearest thousand, of the gross annual income relied on in making the credit decision or, if a credit decision was not made, the gross annual income relied on in processing the application, reported pursuant to 12 CFR 1003.4(a)(10)(iii).

To illustrate, if a loan file indicates June 4th as the application date, a LAR application date of June 1st or June 7th would not be counted as an error because it is within three calendar days of June 4th, but a LAR application date of May 31st or June 8th would be counted as an error because it is more than three calendar days from June 4th.

Ethnicity or Race Data Errors

10) For purposes of these guidelines, the term “data field” generally refers to individual HMDA Filing Instructions Guide (FIG) fields, each identified by a distinct Data Field Number and Data Field Name. However, with respect to information on the ethnicity or race of an applicant or borrower, or co-applicant or co-borrower, a data field consists of a group of FIG fields as follows:

• The Ethnicity of Applicant or Borrower data field group—comprised of six FIG fields with information on an applicant’s or borrower’s ethnicity (FIG Data Field Numbers 19-24);

• The Ethnicity of Co-Applicant or Co-borrower data field group—comprised of six FIG fields with information on a co-applicant’s or co-borrower’s ethnicity (FIG Data Field Numbers 25-30);

• The Race of Applicant or Borrower data field group—comprised of eight FIG fields with information on an applicant’s or borrower’s race (FIG Data Field Numbers 33-40); and

Oct 2017 123

• The Race of Co-Applicant or Co-borrower data field group—comprised of eight FIG fields with information on a co-applicant’s or co-borrower’s race (FIG Data Field Numbers 41-48).6

To illustrate, for an applicant who indicates “Hispanic or Latino” and “Mexican” in response to the question of ethnicity, a financial institution reports the information in two FIG fields, for example, Ethnicity of Applicant or Borrower: 1 (1: Hispanic or Latino) and Ethnicity of Applicant or Borrower: 2 (11: Mexican). If one or more of the six Ethnicity of Applicant or Borrower FIG fields have errors, they would count as one (and only one) error for that data field group. If the Ethnicity of Applicant or Borrower data field group has errors in the Total Sample that meet or exceed the Resubmission Threshold in Column D of the HMDA Table, examiners should direct the institution to correct the six Ethnicity of Applicant or Borrower FIG fields and resubmit its HMDA LAR with those FIG fields corrected. See Example 4 below.

Prospective Changes 11) Examiners may direct the financial institution to make any appropriate changes in its

policies, procedures, audit processes, or other aspects of its compliance management system needed to prevent the reoccurrence of errors identified within the sample that are—absent such changes—capable of repetition, even if the number of errors does not equal or exceed either the Initial Sample Threshold in Column C or the Resubmission Threshold in Column D of the HMDA Table, or even if the errors fall within the tolerances provided in paragraph 9.

HMDA Transaction Testing Sample Sizes and Thresholds

LAR Count

Total Sample Size

(A)

Initial Sample Size

(B)

Initial Sample Threshold

(C)

Resubmission Threshold

(D) # % 25 – 50 30* 15 2 3 10.0* 51 – 100 30 20 2 3 10.0 101 – 130 47 29 2 3 6.4 131 – 190 56 29 2 3 5.4 191 – 500 59 30 2 3 5.1 501 – 100,000 79 35 2 4 5.1 100,001+ 159 61 2 4 2.5

*For institutions with fewer than 30 LAR lines, the full sample size is the institution’s total number of LAR lines. The Resubmission Threshold number remains at 3. Accordingly, the Resubmission Threshold percentage will be higher for

6 Data fields indicating whether ethnicity or race information was collected on the basis of visual observation or surname (FIG Data Field Numbers 31, 32, 49, and 50) are not included in any data group enumerated in Paragraph 10 and are treated as individual data fields for purposes of these guidelines.

Oct 2017 124

institutions with fewer than 30 LAR lines.

Examples

1. Financial Institution A’s HMDA LAR contains 35 entries. Examiners select a Total Sample of 30 loans as shown in Column A of the HMDA Table.

• Examiners test the Initial Sample of 15 as shown in Column B of the HMDA Table and find two errors in the Action Taken data field, which equals the Initial Sample Threshold in Column C of the HMDA Table.

• Accordingly, the examiners proceed to review the remaining 15 entries in the Total Sample and find one additional error in the Action Taken data field for a total of three errors in that field, which equals the Resubmission Threshold in Column D of the HMDA Table. In the review of the remaining entries in the Total Sample, examiners also find two errors in the Rate Spread data field, which is below the Resubmission Threshold in Column D of the HMDA Table.

• Therefore, Financial Institution A is directed to correct the Action Taken data field and resubmit its HMDA LAR with that field corrected.

2. Financial Institution B’s HMDA LAR contains 125 entries. Examiners select a Total Sample of 47 loans as shown in Column A of the HMDA Table.

• Examiners test the Initial Sample of 29 loans as shown in Column B of the HMDA Table and find one error in the Action Taken data field, which is less than the Initial Sample Threshold in Column C of the HMDA Table; one error in the Loan Type data field, which is less than the Initial Sample Threshold; and no other errors.

• Therefore, examiners end the HMDA transaction testing for Financial Institution B and do not proceed to Stage 2 testing of the 18 remaining entries in the Total Sample because no Stage 1 errors in any single data field equaled or exceeded the Initial Sample Threshold.

3. Financial Institution C’s HMDA LAR contains 500,000 entries. Examiners select a Total Sample of 159 loans as shown in Column A of the HMDA Table.

• Examiners test the Initial Sample of 61 loans as shown in Column B of the HMDA Table and find two errors in the Action Taken data field, which equals the Initial Sample Threshold in Column C of the HMDA Table; and five errors in the Loan Amount data field, which also exceeds the Initial Sample Threshold in Column C of the HMDA Table.

• Accordingly, examiners proceed to test the remaining 98 entries in the Total Sample and find two additional errors in the Action Taken data field, for a total of four errors in that field, which equals the Resubmission Threshold in Column D of the HMDA Table; five additional errors in the Loan Amount data field, for a total of ten errors in that field, which exceeds the Resubmission Threshold in Column D of the HMDA Table; and four errors in the Census Tract data field, which equals the Resubmission Threshold in Column D of the HMDA Table.

Oct 2017 125

• Therefore, Financial Institution C is directed to correct the Action Taken data field, the Loan Amount data field, and the Census Tract data field and resubmit its HMDA LAR with those fields corrected.

4. Financial Institution D’s HMDA LAR contains 1,000 entries. Examiners select a Total Sample of 79 loans as shown in Column A of the HMDA Table.

• Examiners test the Initial Sample of 35 loans as shown in Column B of the HMDA Table and find one loan with an error in the FIG Applicant or Borrower Race: 1 field, and a different loan with an error in the FIG Applicant or Borrower Race: 2 field, for a total of two errors in the Race of Applicant or Borrower data field group, which equals the Initial Sample Threshold in Column C of the HMDA Table.

• Accordingly, the examiners proceed to test the remaining 44 entries in the Total Sample and find one loan with an error in the FIG Applicant or Borrower Race: 2 field, and one loan with errors in both the FIG Applicant or Borrower Race: 1 field and the FIG Applicant or Borrower Race: 2 field, for a total of four loans with at least one error in one of the eight Race of Applicant or Borrower FIG fields, which equals the Resubmission Threshold in Column D of the HMDA Table.

• Therefore, Financial Institution D is directed to correct all eight FIG fields in the Race of Applicant or Borrower data field group and resubmit its HMDA LAR with those FIG fields corrected.

• The following table summarizes how the errors in this example are counted toward the Resubmission Threshold in Column D of the HMDA table:

FIG Applicant or Borrower Race: 1 field

FIG Applicant or Borrower Race: 2 field

Race of Applicant or Borrower data field group

Loan #1 Error (Initial Sample) 1 Loan #2 Error (Initial Sample) 1 Loan #3 Error (Remaining

Sample) 1

Loan #4 Error (Remaining Sample)

Error (Remaining Sample)

1

Total errors 4

Oct 2017 126

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Version 2017 Release 2 for the CY 2017 CRA data due March 1, 2018 is now available. Eachsoftware version is year-specific (i.e. 2016 reporting requires 2016 CRA DES and not 2017CRA DES).The software must be installed locally on a hard disk; it is NOT network compatible.

Current Version

Resources and Tools for filing HMDA data collected in or after 2017

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Oct 2017 127

File Checksums

File downloads can be verified by technial staff using the following checksums:

MD5 SHA-1

Installation Instructions

1. The software should be installed locally; it is NOT network compatible.2. Locate the directory which contains the "HMDA (or CRA) DES 20XX Setup"

installation package.3. Double-click on the installer to launch the wizard which will guide you through the

installation process.

Note: To preserve your data when installing a newer release of the Data Entry Software,updates should be installed to the same location as the earlier release of the same year(e.g., CRA DES v. 2017 R.2 should be installed to the same location as CRA DES v.2017).If installing a new year release (e.g. you are installing CRA DES 2017 at the beginning ofyour reporting year), the software must be installed to a new, year-specific directory.(The software is configured to do this by default.)

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Oct 2017 128

41158 Federal Register / Vol. 82, No. 167 / Wednesday, August 30, 2017 / Rules and Regulations

1 Credit Card Accountability Responsibility and Disclosure Act of 2009, Public Law 111–24, 123 Stat. 1734 (2009).

implementing regulations to restrict DOE’s ability to allocate the Transaction Advisory Costs or other Category II Costs associated with a particular application to the relevant applicant.

Based on its interpretation of the statute as explained in this rule, applicants for ATVM loans can bear all Transaction Advisory Costs associated with their respective applications. Applicants would pay Transaction Advisory Costs pursuant to direct agreements executed by and between the applicant and each relevant outside transaction advisor, in a form acceptable to DOE and each such transaction advisor, no later than the date determined by DOE in its discretion with respect to such pending application.

II. Approval of the Office of the Secretary

The Secretary of Energy has approved publication of this interpretive rule.

List of Subjects in 10 CFR Part 611 Administrative practice and

procedure, Loan programs—energy, Reporting and recordkeeping requirements.

Issued in Washington, DC, on August 24, 2017. John Sneed, Executive Director, Loan Programs Office. [FR Doc. 2017–18400 Filed 8–29–17; 8:45 am]

BILLING CODE 6450–01–P

BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1026

Truth in Lending (Regulation Z) Annual Threshold Adjustments (Credit Cards, HOEPA, and ATR/QM)

AGENCY: Bureau of Consumer Financial Protection. ACTION: Final rule; official interpretation.

SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is issuing this final rule amending the official interpretations for Regulation Z, which implements the Truth in Lending Act (TILA). The Bureau is required to calculate annually the dollar amounts for several provisions in Regulation Z; this final rule revises, as applicable, the dollar amounts for provisions implementing TILA and amendments to TILA, including under the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), the Home Ownership and Equity Protection Act of 1994 (HOEPA), and the Dodd-

Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The Bureau is adjusting these amounts, where appropriate, based on the annual percentage change reflected in the Consumer Price Index (CPI) in effect on June 1, 2017. DATES: This final rule is effective January 1, 2018. FOR FURTHER INFORMATION CONTACT: Jaclyn Maier, Counsel, Office of Regulations, Consumer Financial Protection Bureau, 1700 G Street NW., Washington, DC 20552 at (202) 435– 7700. SUPPLEMENTARY INFORMATION: The Bureau is amending the official interpretations for Regulation Z, which implements TILA, to update the dollar amounts of various thresholds that are adjusted annually based on the annual percentage change in the CPI as published by the Bureau of Labor Statistics (BLS). Specifically, for open- end consumer credit plans under TILA, the threshold that triggers requirements to disclose minimum interest charges will remain unchanged at $1.00 in 2018. For open-end consumer credit plans under the CARD Act amendments to TILA, the adjusted dollar amount for the safe harbor for a first violation penalty fee will remain unchanged at $27 in 2018 and the adjusted dollar amount for the safe harbor for a subsequent violation penalty fee will remain unchanged at $38 in 2018. For HOEPA loans, the adjusted total loan amount threshold for high-cost mortgages in 2018 will be $21,032. The adjusted points and fees dollar trigger for high- cost mortgages in 2018 will be $1,052. For the general rule to determine consumers’ ability to repay mortgage loans, the maximum thresholds for total points and fees for qualified mortgages in 2018 will be 3 percent of the total loan amount for a loan greater than or equal to $105,158; $3,155 for a loan amount greater than or equal to $63,095 but less than $105,158; 5 percent of the total loan amount for a loan greater than or equal to $21,032 but less than $63,095; $1,052 for a loan amount greater than or equal to $13,145 but less than $21,032; and 8 percent of the total loan amount for a loan amount less than $13,145.

I. Background

A. Credit Card Annual Adjustments

Minimum Interest Charge Disclosure Thresholds

Sections 1026.6(b)(2)(iii) and 1026.60(b)(3) of the Bureau’s Regulation Z implement sections 127(a)(3) and 127(c)(1)(A)(ii)(II) of TILA. Sections

1026.6(b)(2)(iii) and 1026.60(b)(3) require the disclosure of any minimum interest charge exceeding $1.00 that could be imposed during a billing cycle and provide that, for open-end consumer credit plans, the minimum interest charge thresholds will be re- calculated annually using the CPI that was in effect on the preceding June 1; the Bureau uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI–W) for this adjustment. When the cumulative change in the adjusted minimum value derived from applying the annual CPI– W level to the current amounts in §§ 1026.6(b)(2)(iii) and 1026.60(b)(3) has risen by a whole dollar, the minimum interest charge amounts set forth in the regulation will be increased by $1.00. The BLS publishes consumer-based indices monthly but does not report a CPI change on June 1; adjustments are reported in the middle of the month. This adjustment analysis is based on the CPI–W index in effect on June 1, 2017, which was reported by BLS on May 12, 2017, and reflects the percentage change from April 2016 to April 2017. The CPI– W is a subset of the Consumer Price Index for All Urban Consumers (CPI–U) index and represents approximately 28 percent of the U.S. population. The adjustment analysis accounts for a 2.1 percent increase in the CPI–W from April 2016 to April 2017. This increase in the CPI–W when applied to the current amounts in §§ 1026.6(b)(2)(iii) and 1026.60(b)(3) did not trigger an increase in the minimum interest charge threshold of at least $1.00, and the Bureau is therefore not amending §§ 1026.6(b)(2)(iii) and 1026.60(b)(3).

Safe Harbor Penalty Fees Section 1026.52(b)(1)(ii)(A) and (B) of

the Bureau’s Regulation Z implements section 149(e) of TILA, established by the CARD Act.1 Section 1026.52(b)(1)(ii)(D) provides that the safe harbor provision, which establishes the permissible penalty fee thresholds in § 1026.52(b)(1)(ii)(A) and (B), will be re-calculated annually using the CPI that was in effect on the preceding June 1; the Bureau uses the CPI–W for this adjustment. The BLS publishes consumer-based indices monthly but does not report a CPI change on June 1; adjustments are reported in the middle of the month. The CPI–W is a subset of the CPI–U index and represents approximately 28 percent of the U.S. population. When the cumulative change in the adjusted value derived

VerDate Sep<11>2014 13:47 Aug 29, 2017 Jkt 241001 PO 00000 Frm 00002 Fmt 4700 Sfmt 4700 E:\FR\FM\30AUR1.SGM 30AUR1Oct 2017 129

41159 Federal Register / Vol. 82, No. 167 / Wednesday, August 30, 2017 / Rules and Regulations

2 Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111–203, 124 Stat. 1376 (2010).

from applying the annual CPI–W level to the current amounts in § 1026.52(b)(1)(ii)(A) and (B) has risen by a whole dollar, those amounts will be increased by $1.00. Similarly, when the cumulative change in the adjusted value derived from applying the annual CPI– W level to the current amounts in § 1026.52(b)(1)(ii)(A) and (B) has decreased by a whole dollar, those amounts will be decreased by $1.00. See comment 52(b)(1)(ii)–2. The 2018 adjustment analysis is based on the CPI– W index in effect on June 1, 2017, which was reported by BLS on May 12, 2017, and reflects the percentage change from April 2016 to April 2017. The 2.1 percent increase in the CPI–W from April 2016 to April 2017 did not trigger an increase in the first violation safe harbor penalty fee of $27 or the subsequent violation safe harbor penalty fee of $38, and the Bureau is therefore not amending § 1026.52(b)(1)(ii)(A) and (B) for the 2018 calendar year.

B. HOEPA Annual Threshold Adjustments

Section 1026.32(a)(1)(ii) of the Bureau’s Regulation Z implements section 1431 of the Dodd-Frank Act,2 which amended the HOEPA points and fees coverage test. Under § 1026.32(a)(1)(ii)(A) and (B), when determining whether a transaction is a high-cost mortgage, the determination of the applicable points and fees coverage test is based upon whether the total loan amount is for $20,000 or more, or for less than $20,000. Section 1026.32(a)(1)(ii) provides that this threshold amount be recalculated annually using the CPI index in effect on June 1; the Bureau uses the CPI–U for this adjustment. The CPI–U is based on all urban consumers and represents approximately 88 percent of the U.S. population. The BLS publishes consumer-based indices monthly but does not report a CPI change on June 1; adjustments are reported in the middle of each month. The 2018 adjustment is based on the CPI–U index in effect on June 1, which was reported by BLS on May 12, 2017, and reflects the percentage change from April 2016 to April 2017. The adjustment to the $20,000 figure being adopted here reflects a 2.2 percent increase in the CPI–U index for this period and is rounded to whole dollars for ease of compliance.

Under § 1026.32(a)(1)(ii)(B) the HOEPA points and fees dollar trigger is $1,000. Section 1026.32(a)(1)(ii)(B)

provides that this threshold amount will be recalculated annually using the CPI index in effect on June 1; the Bureau uses the CPI–U for this adjustment. The 2018 adjustment is based on the CPI–U index in effect on June 1, which was reported by BLS on May 12, 2017, and reflects the percentage change from April 2016 to April 2017. The adjustment to the $1,000 figure being adopted here reflects a 2.2 percent increase in the CPI–U index for this period and is rounded to whole dollars for ease of compliance.

C. Ability To Repay and Qualified Mortgages Annual Threshold Adjustments

The Bureau’s Regulation Z implements sections 1411 and 1412 of the Dodd-Frank Act, which generally require creditors to make a reasonable, good faith determination of a consumer’s ability to repay any consumer credit transaction secured by a dwelling, and establishes certain protections from liability under this requirement for qualified mortgages. Under § 1026.43(e)(3)(i), a covered transaction is not a qualified mortgage if the transaction’s points and fees exceed: 3 Percent of the total loan amount for a loan amount greater than or equal to $100,000; $3,000 for a loan amount greater than or equal to $60,000 but less than $100,000; 5 percent of the total loan amount for loans greater than or equal to $20,000 but less than $60,000; $1,000 for a loan amount greater than or equal to $12,500 but less than $20,000; or 8 percent of the total loan amount for loans less than $12,500. Section 1026.43(e)(3)(ii) provides that the limits and loan amounts in § 1026.43(e)(3)(i) are recalculated annually for inflation using the CPI–U index in effect on June 1. The CPI–U is based on all urban consumers and represents approximately 88 percent of the U.S. population. The BLS publishes consumer-based indices monthly but does not report a CPI change on June 1; adjustments are reported in the middle of each month. The 2018 adjustment is based on the CPI–U index in effect on June 1, which was reported by BLS on May 12, 2017, and reflects the percentage change from April 2016 to April 2017. The adjustment to the 2017 figures being adopted here reflects a 2.2 percent increase in the CPI–U index for this period and is rounded to whole dollars for ease of compliance.

II. Adjustment and Commentary Revision

A. Credit Card Annual Adjustments

Minimum Interest Charge Disclosure Thresholds—§§ 1026.6(b)(2)(iii) and 1026.60(b)(3)

The minimum interest charge amounts for §§ 1026.6(b)(2)(iii) and 1026.60(b)(3) will remain unchanged at $1.00 for the year 2018. Accordingly, the Bureau is not amending these sections of Regulation Z.

Safe Harbor Penalty Fees— § 1026.52(b)(1)(ii)(A) and (B)

The safe harbor penalty fee amounts remain unchanged at $27 for § 1026.52(b)(1)(ii)(A) (first violation safe harbor penalty fee) and $38 for § 1026.52(b)(1)(ii)(B) (subsequent violation safe harbor penalty fee) for the year 2018. Accordingly, the Bureau is not amending these sections of Regulation Z. The Bureau is amending comment 52(b)(1)(ii)–2.i to preserve a list of the historical thresholds for this provision.

B. HOEPA Annual Threshold Adjustment—Comments 32(a)(1)(ii)–1 and –3

Effective January 1, 2018, for purposes of determining under § 1026.32(a)(1)(ii) the points and fees coverage test under HOEPA to which a transaction is subject, the total loan amount threshold is $21,032, and the adjusted points and fees dollar trigger under § 1026.32(a)(1)(ii)(B) is $1,052. When the total loan amount for a transaction is $21,032 or more, and the points and fees amount exceeds 5 percent of the total loan amount, the transaction is a high-cost mortgage. When the total loan amount for a transaction is less than $21,032, and the points and fees amount exceeds the lesser of the adjusted points and fees dollar trigger of $1,052 or 8 percent of the total loan amount, the transaction is a high-cost mortgage. The Bureau is amending comments 32(a)(1)(ii)–1 and –3, which list the adjustments for each year, to reflect for 2018 the new loan amount dollar threshold and the new points and fees dollar trigger, respectively.

C. Ability To Repay and Qualified Mortgages Annual Threshold Adjustments

Effective January 1, 2018, for purposes of determining whether a covered transaction is a qualified mortgage under § 1026.43(e), a covered transaction is not a qualified mortgage if, pursuant to § 1026.43(e)(3), the transaction’s total points and fees exceed 3 percent of the total loan

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41160 Federal Register / Vol. 82, No. 167 / Wednesday, August 30, 2017 / Rules and Regulations

amount for a loan amount greater than or equal to $105,158; $3,155 for a loan amount greater than or equal to $63,095 but less than $105,158; 5 percent of the total loan amount for loans greater than or equal to $21,032 but less than $63,095; $1,052 for a loan amount greater than or equal to $13,145 but less than $21,032; or 8 percent of the total loan amount for loans less than $13,145. The Bureau is amending comment 43(e)(3)(ii)–1, which lists the adjustments for each year, to reflect the new dollar threshold amounts for 2018.

III. Procedural Requirements

A. Administrative Procedure Act Under the Administrative Procedure

Act, notice and opportunity for public comment are not required if the Bureau finds that notice and public comment are impracticable, unnecessary, or contrary to the public interest. 5 U.S.C. 553(b)(B). Pursuant to this final rule, in Regulation Z, comments 32(a)(1)(ii)–1.iv and –3.iv, 43(e)(3)(ii)–1.iv, and 52(b)(1)(ii)–2.i.E in supplement I are added to update the exemption thresholds. The amendments in this final rule are technical and non- discretionary, as they merely apply the method previously established in Regulation Z for determining adjustments to the thresholds. For these reasons, the Bureau has determined that publishing a notice of proposed rulemaking and providing opportunity for public comment are unnecessary. The amendments therefore are adopted in final form.

B. Regulatory Flexibility Act Because no notice of proposed

rulemaking is required, the Regulatory Flexibility Act does not require an initial or final regulatory flexibility analysis. 5 U.S.C. 603(a), 604(a).

C. Paperwork Reduction Act In accordance with the Paperwork

Reduction Act of 1995 (44 U.S.C. 3506; 5 CFR part 1320), the Bureau reviewed this final rule. No collections of information pursuant to the Paperwork Reduction Act are contained in the final rule.

List of Subjects in 12 CFR Part 1026 Advertising, Consumer protection,

Credit, Credit unions, Mortgages, National banks, Reporting and recordkeeping requirements, Savings associations, Truth in lending.

Authority and Issuance For the reasons set forth in the

preamble, the Bureau amends Regulation Z, 12 CFR part 1026, as set forth below:

PART 1026—TRUTH IN LENDING (REGULATION Z)

■ 1. The authority citation for part 1026 continues to read as follows:

Authority: 12 U.S.C. 2601, 2603–2605, 2607, 2609, 2617, 3353, 5511, 5512, 5532, 5581; 15 U.S.C. 1601 et seq.

■ 2. In Supplement I to part 1026— Official Interpretations: ■ a. Under Section 1026.32— Requirements for High-Cost Mortgages, under 32(a) Coverage, under Paragraph 32(a)(1)(ii), paragraphs 1.iv and 3.iv are added. ■ b. Under Section 1026.43—Minimum Standards for Transactions Secured by a Dwelling, under 43(e) Qualified mortgages, under Paragraph 43(e)(3)(ii), paragraph 1.iv is added. ■ c. Under Section 1026.52— Limitations on Fees, under 52(b) Limitations on Penalty Fees, under 52(b)(1)(ii) Safe harbors, paragraph 2.i.E is added.

The additions read as follows:

Supplement I to Part 1026—Official Interpretations

* * * * *

Subpart E—Special Rules for Certain Home Mortgage Transactions

* * * * *

Section 1026.32—Requirements for Certain Closed-End Home Mortgages

32(a) Coverage

* * * * * Paragraph 32(a)(1)(ii). 1. * * * iv. For 2018, $1,052, reflecting a 2.2

percent increase in the CPI–U from June 2016 to June 2017, rounded to the nearest whole dollar. * * * * *

3. * * * iv. For 2018, $21,032, reflecting a 2.2

percent increase in the CPI–U from June 2016 to June 2017, rounded to the nearest whole dollar. * * * * *

Section 1026.43—Minimum Standards for Transactions Secured by a Dwelling

* * * * * 43(e) Qualified mortgages.

* * * * * Paragraph 43(e)(3)(ii). 1. * * * iv. For 2018, reflecting a 2.2 percent

increase in the CPI–U that was reported on the preceding June 1, a covered transaction is not a qualified mortgage unless the transaction’s total points and fees do not exceed:

A. For a loan amount greater than or equal to $105,158: 3 percent of the total loan amount;

B. For a loan amount greater than or equal to $63,095 but less than $105,158: $3,155;

C. For a loan amount greater than or equal to $21,032 but less than $63,095: 5 percent of the total loan amount;

D. For a loan amount greater than or equal to $13,145 but less than $21,032: $1,052;

E. For a loan amount less than $13,145: 8 percent of the total loan amount. * * * * *

Subpart G—Special Rules Applicable to Credit Card Accounts and Open-End Credit Offered to College Students

* * * * *

Section 1026.52—Limitations on Fees

* * * * *

52(b) Limitations on Penalty Fees

* * * * *

52(b)(1)(ii) Safe harbors

* * * * * 2. * * * i. * * * E. Card issuers were permitted to

impose a fee for violating the terms of an agreement if the fee did not exceed $27 under § 1026.52(b)(1)(ii)(A) and $38 under § 1026.52(b)(1)(ii)(B), through December 31, 2017. * * * * *

Dated: July 25, 2017. Richard Cordray, Director, Bureau of Consumer Financial Protection. [FR Doc. 2017–18003 Filed 8–29–17; 8:45 am]

BILLING CODE 4810–AM–P

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. FAA–2017–0503; Product Identifier 2017–NM–032–AD; Amendment 39–19009; AD 2017–17–19]

RIN 2120–AA64

Airworthiness Directives; The Boeing Company Airplanes

AGENCY: Federal Aviation Administration (FAA), DOT. ACTION: Final rule.

SUMMARY: We are adopting a new airworthiness directive (AD) for all The Boeing Company Model DC–9–81 (MD–

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OCC BULLETIN 2017-35Subject: Flood Disaster Protection ActDate: September 7, 2017To: Chief Executive Officers and Compliance Officers of All National Banks and Federal Savings Associations, FederalBranches and Agencies, Department and Division Heads, All Examining Personnel, and Other Interested Parties

Description: Revised Comptroller’s Handbook BookletSummary

The Office of the Comptroller of the Currency (OCC) issued today the “Flood Disaster Protection Act” booklet of theComptroller’s Handbook. This revised booklet replaces a similarly titled booklet issued in May 1999. The revisedbooklet provides information on changes to the flood insurance requirements resulting from recent amendments to theFlood Disaster Protection Act (FDPA) and the flood insurance regulations (12 CFR 22) and makes other clarifyingchanges. These changes include an exemption for certain detached structures from the mandatory purchase of floodinsurance requirements; escrow requirements for flood insurance premiums and fees for any loan secured by residentialreal estate or a mobile home that is made, increased, extended, or renewed on or after January 1, 2016; and amendmentsrelated to the force placement of flood insurance.

Note for Community Banks

The “Flood Disaster Protection Act” booklet applies to the examination of all national banks, federal savingsassociations, and federal branches and agencies of foreign banks (collectively, banks) subject to the FDPA and theflood insurance regulations codified at 12 CFR 22.

Highlights

Updates to the “Flood Disaster Protection Act” booklet reflect

the exemption for certain detached structures from the requirement to purchase flood insurance. Under thisexemption, a structure that is part of a residential property but is detached from the primary residential structure ofthe property and does not serve as a residence is not required to be covered by flood insurance. A bank maychoose, however, to require flood insurance on the detached structure to protect the collateral securing themortgage.the requirement for a bank, or a servicer acting on its behalf, to escrow premiums and fees for flood insurance forany loan secured by residential improved real estate or a mobile home that is made, increased, extended, orrenewed on or after January 1, 2016. Certain loans are excepted from this requirement. Small lenders that havetotal assets of less than $1 billion and, as of July 6, 2012, (1) were not required by applicable federal or state lawto escrow taxes or insurance for the entire term of the loan, and (2) did not have a policy of consistently requiringescrow of taxes or insurance, are also excepted from this requirement.the requirement for a bank that is subject to the escrow requirement to offer and make available to borrowers theoption to escrow flood insurance premiums and fees for loans that are outstanding as of January 1, 2016. Bankswere required to deliver information to borrowers on the escrow option by June 30, 2016, and to implement the

Oct 2017 132

escrow as soon as reasonably practicable after receiving a borrower’s request to escrow.changes to the force placement provision of the FDPA clarifying that a bank, or a servicer acting on its behalf, hasauthority to charge a borrower for the cost of force-placed flood insurance coverage beginning on the date theborrower-purchased coverage lapsed or became insufficient. In addition, the bank must terminate force-placedinsurance coverage within 30 days of receipt of confirmation of a borrower’s existing policy and must refund tothe borrower all premiums and fees for force-placed insurance paid by the borrower during any period of overlapbetween the borrower’s policy and the force-placed policy.examination procedures for determining compliance with the detached structure, escrow, and force placementprovisions.

Background

The Biggert–Waters Flood Insurance Reform Act of 2012 and the Homeowner Flood Insurance Affordability Act of2014 amended the FDPA provisions pertaining to the exemptions from the requirement to purchase flood insurance, theescrowing of flood insurance premiums and fees, and the force placement of flood insurance.

The OCC, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, theNational Credit Union Administration, and the Farm Credit Administration (collectively, the agencies) jointly issuedrules addressing the exemption from the mandatory purchase requirement for detached structures, the escrowrequirement, and the force placement provision on July 21, 2015 (80 Fed. Reg. 43215).

In addition, the Biggert–Waters Act added to the FDPA a provision mandating the acceptance of a private floodinsurance policy meeting certain criteria in satisfaction of the mandatory purchase requirement. The agencies indicatedin the 2015 rulemaking that the private insurance provision will be addressed in a separate rulemaking.

Further Information

For further information, contact Rhonda L. Daniels, Compliance Specialist, at (202) 649-5470.

Donna M. MurphyDeputy Comptroller for Compliance Risk Policy

Related Link

"Flood Disaster Protection Act” (PDF)

Oct 2017 133

__________________________________________________________________

__________________________________________________________________

Office of the Comptroller of the Currency Federal Deposit Insurance Corporation

Federal Reserve Board Office of Thrift Supervision

National Credit Union Administration

INTERAGENCY FAIR LENDING

EXAMINATION PROCEDURES

August 2009

Oct 2017 134

on comparative evidence (similar to analyses of possible disparate treatment of individual customers) in which the institution’s treatment of areas with contrasting racial or national origin characters is compared.

When the scoping process (including consultation within an agency as called for by agency procedures) indicates that a redlining analysis should be initiated, examiners should complete the following steps of comparative analysis:

1. Identify and delineate any areas within the institution’s CRA assessment area and reasonably expected market area for residential products that have a racial or national origin character;

2. Determine whether any minority area identified in Step 1 appears to be excluded, under-served, selectively excluded from marketing efforts, or otherwise less-favorably treated in any way by the institution;

3. Identify and delineate any areas within the institution’s CRA assessment area and reasonably expected market area for residential products that are non-minority in character and that the institution appears to treat more favorably;

4. Identify the location of any minority areas located just outside the institution’s CRA assessment area and market area for residential products, such that the institution may be purposely avoiding such areas.

5. Obtain the institution’s explanation for the apparent difference in treatment between the areas and evaluate whether it is credible and reasonable; and

6. Obtain and evaluate other information that may support or contradict interpreting identified disparities to be the result of intentional illegal discrimination.

These steps are discussed in detail below.

Using information obtained during scoping

Although the six tasks listed are presented below as examination steps in the order given above, examiners should recognize that a different order may be preferable in any given examination. For example, the institution’s explanation (Step 5) for one of the policies or patterns in question may already be documented in the CRA materials reviewed (Step 1) and the CRA examiners may already have verified it, which may be sufficient for purposes of the redlining analysis.

As another example, as part of the scoping process, the examiners may have reviewed an analysis of the geographic distribution of the institution’s loan originations with respect to the racial and national origin composition of census tracts within its CRA assessment or residential

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market area. Such analysis might have documented the existence of significant discrepancies between areas, by degree of minority concentration, in loans originated (risk factor R1), approval/denial rates (risk factor R2) and/or rates of denials because of insufficient collateral (risk factor R3). In such a situation in which the scoping process has produced a reliable factual record, the examiners could begin with Step 5 (obtaining an explanation) of the redlining analysis below.

In contrast, when the scoping process only yields partial or questionable information, or when the risk factors on which the redlining analysis is based on complaints or allegations against the institution, Steps 1-4 must be addressed.

Comparative analysis for redlining

Step 1: Identify and delineate any areas within the institution’s CRA assessment area and reasonably expected market area for residential products that are of a racial or national origin minority character.

NOTE: The CRA assessment area can be a convenient unit for redlining analysis because information about it typically already is in hand. However, the CRA assessment area may be too limited. The redlining analysis focuses on the institution’s decisions about how much access to credit to provide to different geographical areas. The areas for which those decisions can best be compared are areas where the institution actually marketed and provided credit and where it could reasonably be expected to have marketed and provided credit. Some of those areas might be beyond or otherwise different from the CRA assessment area.

If there are no areas identifiable for their racial or national origin minority character within the institution’s CRA assessment area or reasonably expected market area for residential products, a redlining analysis is not appropriate. (If there is a substantial but dispersed minority population, potential disparate treatment can be evaluated by a routine comparative file review of applicants.)

This step may have been substantially completed during scoping, but unresolved matters may remain. (For example, several community spokespersons may allege that the institution is redlining, but disagree in defining the area). The examiners should:

a. Describe as precisely as possible why a specific area is recognized in the community (perceptions of residents, etc.) and/or is objectively identifiable (based on census or other data) as having a particular racial or national origin minority character.

• The most obvious identifier is the predominant race or national origin of the residents of the area. Examiners should document the percentages of racial or national origin minorities residing within the census tracts that make up the area.

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Analyzing racial and national origin concentrations in quartiles (such as 0 to <=25%, >25% to < = 50%, >50% to <= 75%, and >75%) or based on majority concentration (0 to <=50%, and >50%) may be helpful. However, examiners should bear in mind that it is illegal for the institution to consider a prohibited factor in any way. For example, an area or neighborhood may only have a minority population of 20%, but if the area’s concentration appears related to lending practices, it would be appropriate to use that area’s level of concentration in the analysis. Contacts with community groups can be helpful to learn whether there are such subtle features of racial or ethnic character within a particular neighborhood.

• Geographical groupings that are convenient for CRA may obscure racial patterns. For example, an underserved, low-income, predominantly minority neighborhood that lies within a larger low-income area that primarily consisted of non-minority neighborhoods, may seem adequately served when the entire low-income area is analyzed as a unit. However, a racial pattern of underservice to minority areas might be revealed if the low-income minority neighborhood shared a border with an underserved, middle-income, minority area and those two minority areas were grouped together for purposes of analysis.

b. Describe how the racial or national origin character changes across the suspected redlining area’s various boundaries.

c. Document or estimate the demand for credit, within the minority area. This may include the applicable demographics of the area, including the percentage of homeowners, the median house value, median family income, or the number of small businesses, etc. Review the institution’s non-originated loan applications from the suspected redlined areas. If available, review aggregate institution data for loans originated and applications received from the suspected redlined areas. Community contacts may also be helpful in determining the demand for such credit. If the minority area does not have a significant amount of demand for such credit, the area is not appropriate for a redlining analysis.

Step 2: Determine whether any minority area identified in Step 1 is excluded, under-served, selectively excluded from marketing efforts, or otherwise less-favorably treated in any way by the institution.

The examiners should begin with the risk factors identified during the scoping process. The unfavorable treatment may have been substantially documented during scoping and needs only to be finished in this step. If not, this step will verify and measure the extent to which HMDA data show the minority areas identified in Step 1 to be underserved and/or how the institution's explicit policies treat them less favorably.

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a. Review prior CRA lending test analyses to learn whether they have identified any excluded or otherwise under-served areas or other significant geographical disparities in the institution’s lending. Determine whether any of those are the minority areas identified in Step 1.

b. Learn from the institution itself whether, as a matter of policy, it treats any separate or distinct geographical areas within its marketing or service area differently from other areas. This may have been done completely or partially during scoping analysis related to risk factors R5-R9. The differences in treatment can be in marketing, products offered, branch operations (including the services provided and the hours of operation), appraisal practices, application processing, approval requirements, pricing, loan conditions, evaluation of collateral, or any other policy or practice materially related to access to credit. Determine whether any of those less-favored areas are the minority areas identified in Step 1.

c. Obtain from the institution: (i) its reasons for such differences in policy, (ii) how the differences are implemented, and (iii) any specific conditions that must exist in an area for it to receive the particular treatment (more favorable or less favorable) that the institution has indicated.

Step 3: Identify and delineate any areas within the institution’s CRA assessment area and reasonably expected market area for residential products that are non-minority in character and that the institution appears to treat more favorably.

To the extent not already completed during scoping:

a. Document the percentages of control group and of racial or national origin minorities residing within the census tract(s) that comprise(s) the non-minority area

b. Document the nature of the housing stock in the area

c. Describe, to the extent known, how the institution’s practices, policies, or its rate of lending change from less- to more-favorable as one leaves the minority area at its various boundaries (Examiners should be particularly attentive to instances in which the boundaries between favored and disfavored areas deviate from boundaries the institution would reasonably be expected to follow, such as political boundaries or transportation barriers)

d. Examiners should particularly consider whether, within a large area that is composed predominantly of racial or national origin minority households, there are enclaves that are predominantly non-minority or whether, along the area’s borders, there are irregularities where the non-minority group is predominant. As part of the overall comparison, examiners should determine whether credit access within those small non-minority areas

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differs from credit access in the larger minority area.

Step 4: Identify the location of any minority areas located just outside the institution’s CRA assessment area and market area for residential products, such that the institution may be purposely avoiding such areas.

Review the analysis from prior CRA examinations of whether the assessment area appears to have been influenced by prohibited factors. If there are minority areas that the institution excluded from the assessment area improperly, consider whether they ought to be included in the redlining analysis. Analyze the institution’s reasonably expected market area in the same manner.

Step 5: Obtain the institution’s explanation for the apparent difference in treatment between the areas and evaluate whether it is credible and reasonable.

This step completes the comparative analysis by soliciting from the institution any additional information not yet considered by the examiners that might show that there is a nondiscriminatory explanation for the apparent disparate treatment based on race or ethnicity.

For each matter that requires explanation, provide the institution full information about what differences appear to exist in how it treats minority and non-minority areas, and how the examiners reached their preliminary conclusions at this stage of the analysis.

a. Evaluate whether the conditions identified by the institution in Step 2 as justifying more favorable treatment pursuant to institutional policy existed in minority neighborhoods that did not receive the favorable treatment called for by institutional policy. If there are minority areas for which those conditions existed, ask the institution to explain why the areas were treated differently despite the similar conditions.

b. Evaluate whether the conditions identified by the institution in Step 2 as justifying less favorable treatment pursuant to institutional policy existed in non-minority neighborhoods that received favorable treatment nevertheless. If there are non-minority areas for which those conditions existed, ask the institution to explain why those areas were treated differently, despite the similar conditions.

c. Obtain explanations from the institution for any apparent differences in treatment observed by the examiners but not called for by the institution’s policies

• If the institution’s explanation cites any specific conditions in the non-minority area(s) to justify more favorable treatment, determine whether the minority area(s) identified in Step 1 satisfied those conditions. If there are minority areas for which those conditions existed, ask the institution to explain why the areas were treated differently despite the similar conditions

• If the institution’s explanation cites any specific conditions in the minority area(s)

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1

BILLING CODE: 4810-AM-P

BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1002

[Docket No. CFPB-2017-0009]

RIN 3170-AA65

Amendments to Equal Credit Opportunity Act (Regulation B) Ethnicity and Race

Information Collection

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Final rule; official interpretation.

SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is issuing a final rule that

amends Regulation B to permit creditors additional flexibility in complying with Regulation B in

order to facilitate compliance with Regulation C, adds certain model forms and removes others

from Regulation B, and makes various other amendments to Regulation B and its commentary to

facilitate the collection and retention of information about the ethnicity, sex, and race of certain

mortgage applicants.

DATES: The rule is effective on January 1, 2018, except that the amendment to Appendix B

removing the existing “Uniform Residential Loan Application” form in amendatory instruction 6

is effective January 1, 2022.

FOR FURTHER INFORMATION CONTACT: Shaakira Gold-Ramirez, Paralegal

Specialist, Kathryn Lazarev, Counsel, or James Wylie, Senior Counsel, Office of Regulations, at

202–435–7700 or https://www.consumerfinance.gov/policy-compliance/guidance/ .

Oct 2017 140

2

SUPPLEMENTARY INFORMATION:

I. Summary of the Final Rule

Regulation B implements the Equal Credit Opportunity Act (ECOA)1 and, in part,

prohibits a creditor from inquiring about the race, color, religion, national origin, or sex of a

credit applicant except under certain circumstances.2 Two of these circumstances are a

requirement for creditors to collect and retain certain information about applicants for certain

dwelling-secured loans under Regulation B § 1002.13 and the similar applicant information that

financial institutions are required to collect and report under Regulation C, 12 CFR part 1003,

which implements the Home Mortgage Disclosure Act (HMDA).3 Regulation B also includes

certain optional model forms for use in complying with certain Regulation B requirements,

including a model form for complying with § 1002.13 that is a 2004 version of the Uniform

Residential Loan Application (URLA) issued by the Federal National Mortgage Association

(Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) (collectively,

the Enterprises).4

The HMDA requirement to collect and report applicant information was recently updated

through a final rule amending Regulation C, published in October of 2015 (2015 HMDA Final

Rule).5 In 2016, the Enterprises issued a new version of the URLA that complies with the 2015

1 15 U.S.C. 1691 et seq., 12 CFR part 1002. 2 12 CFR 1002.5(b). 3 12 CFR 1002.5(a)(2). 4 Appendix B to 12 CFR part 1003. 5 Home Mortgage Disclosure (Regulation C), 80 FR 66128 (Oct. 28, 2015).

Oct 2017 141

3

HMDA Final Rule (2016 URLA).6 These changes to Regulation C and the URLA require

updates to Regulation B to ensure consistency among regulations and facilitate compliance with

Regulation B and Regulation C by financial institutions. To address these issues, the Bureau

issued a proposal on March 24, 2017, which was published in the Federal Register on April 4,

2017 (the 2017 ECOA Proposal).7

The Bureau is now publishing final amendments to Regulation B. The final rule will

provide creditors flexibility in complying with Regulation B in order to facilitate compliance

with Regulation C and transition to the 2016 URLA. The changes to Regulation B in this rule

are summarized briefly in this section and discussed in detail below.

A. Scope

The final rule amends parts of Regulation B, its commentary, and its appendices, and

affects when and how a creditor may collect information regarding the applicant’s ethnicity,

race, and sex. The Regulation B creditors affected by this rule are primarily those creditors

making mortgage loans subject to § 1002.13, which applies to purchase and refinance

transactions involving an applicant’s primary residence. Financial institutions that report under

Regulation C, have reported in the prior five years, or may report in the near future may also be

affected by this rule. Creditors that utilize model forms from appendix B to Regulation B (the

Regulation B appendix) for mortgage loans are also affected by the rule.

6 See Fannie Mae, Guide Forms, available at https://www.fanniemae.com/singlefamily/selling-servicing-guide-forms (last visited Sept. 6, 2017) (listing all selling and servicing guide forms); Freddie Mac, “Forms and Documents,” available at http://www.freddiemac.com/singlefamily/guide/ (last visited Sept. 6, 2017) (same). 7 Amendments to Equal Credit Opportunity Act (Regulation B) Ethnicity and Race Information Collection, 82 FR 16307 (Apr. 4, 2017).

Oct 2017 142

4

B. Changes to Applicant Information Collection for Regulation B Creditors

For Regulation B creditors making mortgage loans subject to § 1002.13, the rule will

allow creditors to collect the applicant’s information using either the aggregate ethnicity and race

categories or disaggregated ethnicity and race categories and subcategories, as set forth in

appendix B to Regulation C (the Regulation C appendix) as amended by the 2015 HMDA Final

Rule. The rule change therefore will not require Regulation B creditors that are not HMDA

reporters (Regulation B-only creditors) to change their § 1002.13 compliance practices, but

would allow them to adopt voluntarily new practices for collecting applicant information,

including practices that would permit such creditors to transition to the 2016 URLA. Regulation

B creditors will also be able to collect voluntarily certain information about applicants for certain

mortgage loan scenarios as provided for in § 1002.5(a)(4). These scenarios generally involve

types of loans subject to Regulation C where a creditor voluntarily reports information under

Regulation C, reported such information in the past five years, or may report such information in

the near future.

C. Changes to Applicant Information Collection for HMDA Reporters

Many HMDA reporters are also subject to the collection requirements of § 1002.13. For

those HMDA reporters, the rule provides clarity that compliance with applicant information

collection under Regulation C generally satisfies similar requirements under Regulation B.

HMDA reporters who at some point no longer are required to comply with HMDA can continue

to collect certain applicant information as provided for in § 1002.5(a)(4).

D. Changes to Regulation B Model Forms

The rule makes certain changes to the Regulation B appendix. The rule amends the

Regulation B appendix to provide two options: a model form for collecting aggregate applicant

Oct 2017 143

5

race and ethnicity information and a cross-reference to the Regulation C appendix model form

for collecting disaggregated applicant race and ethnicity information. The rule also removes as

outdated the existing version of the URLA contained in the Regulation B appendix, effective

January 1, 2022. The rule does not add the 2016 URLA to the Regulation B appendix; that form

is subject to a separate Federal Register notice issued by the Bureau acknowledging its

compliance with certain provisions of Regulation B.8

II. Background

A. Regulation B and Ethnicity and Race Information Collection

With some exceptions, Regulation B § 1002.5(b) prohibits a creditor from inquiring

about the race, color, religion, national origin, or sex of an applicant or any other person

(protected applicant-characteristic information) in connection with a credit transaction. Section

1002.5(a)(2) provides several exceptions to that prohibition for information that creditors are

required to request for certain dwelling-secured loans under § 1002.13, and for information

required by a regulation, order, or agreement issued by or entered into with a court or an

enforcement agency to monitor or enforce compliance with ECOA, Regulation B or other

Federal or State statutes or regulations, including Regulation C.

Section 1002.13 sets forth rules for collecting information about an applicant’s ethnicity,

race, sex, marital status, and age under Regulation B. (In this notice, “applicant demographic

information” refers to information about an applicant’s ethnicity, race, or sex information, while

“certain protected applicant-characteristic information” refers to all information collected under

8 Status of New Uniform Loan Application and Collection of Expanded Home Mortgage Information About Ethnicity and Race in 2017, 81 FR 66930 (Sept. 29, 2016).

Oct 2017 144

54

The Bureau has determined that this final rule would not impose any new or revised

information collection requirements (recordkeeping, reporting or disclosure requirements) on

covered entities or members of the public that would constitute collections of information

requiring OMB approval under the PRA. Although some entities subject to Regulation B but not

Regulation C may choose to voluntarily begin collecting disaggregated race and ethnicity

information, the Bureau believes the most likely reason for this to occur is through adoption of

the 2016 URLA, which is not part of the final rule.

List of Subjects in 12 CFR Part 1002

Aged, Banks, Banking, Civil rights, Consumer protection, Credit, Credit unions,

Discrimination, Fair lending, Marital status discrimination, National banks, National origin

discrimination, Penalties, Race discrimination, Religious discrimination, Reporting and

recordkeeping requirements, Savings associations, Sex discrimination.

Authority and Issuance

For the reasons set forth above, the Bureau amends Regulation B, 12 CFR part 1002, as

set forth below:

PART 1002—EQUAL CREDIT OPPORTUNITY ACT (REGULATION B)

1. The authority citation for part 1002 continues to read as follows:

Authority: 12 U.S.C. 5512, 5581; 15 U.S.C. 1691b.

2. Amend § 1002.5 by adding paragraph (a)(4) to read as follows:

§ 1002.5 Rules concerning requests for information.

(a) * * *

(4) Other permissible collection of information. Notwithstanding paragraph (b) of this

section, a creditor may collect information under the following circumstances provided that the

Oct 2017 145

55

creditor collects the information in compliance with appendix B to Regulation C, 12 CFR part

1003:

(i) A creditor that is a financial institution under Regulation C, 12 CFR 1003.2(g), may

collect information regarding the ethnicity, race, and sex of an applicant for a closed-end

mortgage loan that is an excluded transaction under Regulation C, 12 CFR 1003.3(c)(11), if it

submits HMDA data concerning such closed-end mortgage loans and applications or if it

submitted HMDA data concerning closed-end mortgage loans for any of the preceding five

calendar years;

(ii) A creditor that is a financial institution under Regulation C, 12 CFR 1003.2(g), may

collect information regarding the ethnicity, race, and sex of an applicant for an open-end line of

credit that is an excluded transaction under Regulation C, 12 CFR 1003.3(c)(12), if it submits

HMDA data concerning such open-end lines of credit and applications or if it submitted HMDA

data concerning open-end lines of credit for any of the preceding five calendar years;

(iii) A creditor that submitted HMDA data for any of the preceding five calendar years

but is not currently a financial institution under Regulation C, 12 CFR 1003.2(g), may collect

information regarding the ethnicity, race, and sex of an applicant for a loan that would otherwise

be a covered loan under Regulation C, 12 CFR 1003.2(e), if not excluded by Regulation C, 12

CFR 1003.3(c)(11) or (12);

(iv) A creditor that exceeded an applicable loan volume threshold in the first year of the

two-year threshold period provided in Regulation C, 12 CFR 1003.2(g), 1003.3(c)(11), or

1003.3(c)(12), may, in the second year, collect information regarding the ethnicity, race, and sex

of an applicant for a loan that would otherwise be a covered loan under Regulation C, 12 CFR

1003.2(e), if the loan were not excluded by Regulation C, 12 CFR 1003.3(c)(11) or (12);

Oct 2017 146

56

(v) A creditor that is a financial institution under Regulation C, 12 CFR 1003.2(g), or that

submitted HMDA data for any of the preceding five calendar years but is not currently a

financial institution under Regulation C, 12 CFR 1003.2(g), may collect information regarding

the ethnicity, race, and sex of an applicant for a loan that would otherwise be a covered loan

under Regulation C, 12 CFR 1003.2(e), if the loan were not excluded by Regulation C, 12 CFR

1003.3(c)(10).

(vi) A creditor that is collecting information regarding the ethnicity, race, and sex of an

applicant or first co-applicant may collect information regarding the ethnicity, race, and sex of a

second or additional co-applicant for a covered loan under Regulation C, 12 CFR 1003.2(e), or

for a second or additional co-applicant for a loan described in paragraphs (a)(4)(i) through (v) of

this section.

* * * * *

3. Amend § 1002.12 by revising paragraph (b)(1)(i) to read as follows:

§ 1002.12 Record retention.

* * * * *

(b) * * *

(1) * * *

(i) Any application that it receives, any information required to be obtained concerning

characteristics of the applicant to monitor compliance with the Act and this part or other similar

law, any information obtained pursuant to § 1002.5(a)(4), and any other written or recorded

information used in evaluating the application and not returned to the applicant at the applicant’s

request.

4. Amend § 1002.13 by revising paragraphs (a)(1)(i) and paragraph (b) to read as follows:

Oct 2017 147

57

§ 1002.13 Information for monitoring purposes.

(a) * * *

(1) * * *

(i) Ethnicity and race using either:

(A) For ethnicity, the aggregate categories Hispanic or Latino and not Hispanic or Latino;

and, for race, the aggregate categories American Indian or Alaska Native, Asian, Black or

African American, Native Hawaiian or Other Pacific Islander, and White; or

(B) The categories and subcategories for the collection of ethnicity and race set forth in

appendix B to Regulation C, 12 CFR part 1003.

* * * * *

(b) Obtaining information. Questions regarding ethnicity, race, sex, marital status, and

age may be listed, at the creditor's option, on the application form or on a separate form that

refers to the application. The applicant(s) shall be asked but not required to supply the requested

information. If the applicant(s) chooses not to provide the information or any part of it, that fact

shall be noted on the form. The creditor shall then also note on the form, to the extent possible,

the ethnicity, race, and sex of the applicant(s) on the basis of visual observation or surname.

When a creditor collects ethnicity and race information pursuant to § 1002.13(a)(1)(i)(B), the

creditor must comply with any restrictions on the collection of an applicant’s ethnicity or race on

the basis of visual observation or surname set forth in appendix B to Regulation C, 12 CFR part

1003. If there is more than one co-applicant, a creditor is permitted, but is not required, to

collect the information set forth in § 1002.13(a) from a second or additional co-applicant.

* * * * *

Oct 2017 148

58

5. Amend APPENDIX B TO PART 1002—MODEL APPLICATION FORMS by revising

paragraph 1 and adding a Data Collection Model Form to read as follows:

APPENDIX B TO PART 1002—MODEL APPLICATION FORMS

1. This appendix contains five model credit application forms, each designated for use in

a particular type of consumer credit transaction as indicated by the bracketed caption on each

form. The first sample form is intended for use in open-end, unsecured transactions; the second

for closed-end, secured transactions; the third for closed-end transactions, whether unsecured or

secured; the fourth in transactions involving community property or occurring in community

property States; and the fifth in residential mortgage transactions which contains a model

disclosure for use in complying with 1002.13 for certain dwelling-related loans. This appendix

also contains a data collection model form for collecting information concerning an applicant’s

ethnicity, race, and sex that complies with the requirements of § 1002.13(a)(1)(i)(A) and (ii).

Appendix B to Regulation C, 12 CFR part 1003, provides a data collection model form for

collecting information concerning an applicant’s ethnicity, race, and sex that complies with the

requirements of § 1002.13(a)(1)(i)(B) and (ii). All forms contained in this appendix are models;

their use by creditors is optional.

* * * * *

Oct 2017 149

59

* * * * *

M TA COLLECTION MODB. fORM INFORMATION FOR GOVERNMENT MONITORIHGPURPOSES

The ft)lkMlltng ll'lt0m1a!lon 16 rec,.ie6ted by ltle federal Govemmeni lbr cert.In type, or~ fffa!ed lo a o.et*1g ti oroer lo monl!Or tne lenclEf"6 canprarce Wlrl eq.ial crea1 oppcrtll'llty, rarr llOu6lng a,o I\OmE' mortgage al6do61.re &a.6. You are noc rec,.na to fl.rnl6h tt16 rftW!natlon. Ol.l :are enccuage<1 lo Clo 60. You may 58ed ooe or more OKlgnalon lt:lr ·Race.• The law ~ tnat a leroer may not d6cmlmte on tne ba616

...... ~ tt16 lnfl:mlatlon.. or on Vile.mer you Cll006e to fl.m6h n. ttowewr. Ir )OU Choo6e not to

fl.ml6h tne ll'lt>O'l'batlon aria you haW made tnl6 '4)~ca!IOO In per60f'I. Ll'lder ~ ~atil:lns the teoaer 16 requre<l to note etmlel!y. race, aid sex a, tne Da616 ~ V16ual ob6erVatloo or amarne. u yoo ao not .,.611 to 'll.rT16ll the lnA:lnn.atlon, ~ Check

APPLICANT: CO-APPLICANT:

..,,,,ny o Hl6palle or lafno 0 NOi thpanle Ofl.a!Jno

Race

o M'ledcan 1nc11.r, or Ab6ka N'alt.-e

a"'"' a-. o >.merrcan lnCbl or A)a6la Nattve

a Blacl or M1Cal Arre1can o etack or Nl1C:a'I Arneltean a Ha!J\le ttawauan or Ott1e" Pacfflc Mlindef o Hawe HaWallan or other Padlc '6lanCler OW1ll!e a W1ll!e

sex sex

"""' a Female "'"""' 0 Male

Oct 2017 150

60

6. Effective January 1, 2022, amend APPENDIX B TO PART 1002—MODEL APPLICATION

FORMS by revising paragraph 1 and under paragraph 3 removing the form “Uniform Residential

Loan Application”.

The revision reads as follows:

APPENDIX B TO PART 1002—MODEL APPLICATION FORMS

1. This appendix contains four model credit application forms, each designated for use in

a particular type of consumer credit transaction as indicated by the bracketed caption on each

form. The first sample form is intended for use in open-end, unsecured transactions; the second

for closed-end, secured transactions; the third for closed-end transactions, whether unsecured or

secured; and the fourth in transactions involving community property or occurring in community

property States. This appendix also contains a data collection model form for collecting

information concerning an applicant’s ethnicity, race, and sex that complies with the

requirements of § 1002.13(a)(1)(i)(A) and (ii). Appendix B to Regulation C, 12 CFR part 1003,

provides a data collection model form for collecting information concerning an applicant’s

ethnicity, race, and sex that complies with the requirements of § 1002.13(a)(1)(i)(B) and (ii). All

forms contained in this appendix are models; their use by creditors is optional.

* * * * *

7. Amend Supplement I to Part 1002—Official Interpretations:

a. Under Section 1002.5—Rules concerning requests for information:

i. Under Paragraph 5(a)(2), paragraph 2 is revised.

ii. New heading Paragraph 5(a)(4) is added, and under Paragraph 5(a)(4) new paragraph

1 is added.

b. Under Section 1002.12—Record retention:

Oct 2017 151

61

i. Under Paragraph 12(b), paragraph 2 is revised.

c. Under Section 1002.13—Information for monitoring purposes:

i. Under Paragraph 13(a)—Information to be requested, paragraph 7 is revised and

paragraph 8 is added.

ii. Under Paragraph 13(b)—Obtaining of information, paragraph 1 is revised.

iii. Under Paragraph 13(c)—Disclosure to applicants, paragraph 1 is revised.

d. The heading APPENDIX B—MODEL APPLICATION FORMS and paragraphs 1 and 2

thereunder are removed.

The revisions, additions, and removals read as follows:

SUPPLEMENT I TO PART 1002—OFFICIAL INTERPRETATIONS

* * * * *

Section 1002.5—Rules Concerning Requests for Information

5(a) General rules.

* * * * *

Paragraph 5(a)(2).

* * * * *

2. Information required by Regulation C. Regulation C, 12 CFR part 1003, generally

requires creditors covered by the Home Mortgage Disclosure Act (HMDA) to collect and report

information about the race, ethnicity, and sex of applicants for certain dwelling-secured loans,

including some types of loans not covered by § 1002.13.

* * * * *

Oct 2017 152

62

Paragraph 5(a)(4).

1. Other permissible collection of information. Information regarding ethnicity, race, and

sex that is not required to be collected pursuant to Regulation C, 12 CFR part 1003, may

nevertheless be collected under the circumstances set forth in § 1002.5(a)(4) without violating

§ 1002.5(b). The information must be retained pursuant to the requirements of § 1002.12.

* * * * *

Section 1002.12—Record Retention

* * * * *

12(b) Preservation of records.

* * * * *

2. Computerized decisions. A creditor that enters information items from a written

application into a computerized or mechanized system and makes the credit decision

mechanically, based only on the items of information entered into the system, may comply with

§ 1002.12(b) by retaining the information actually entered. It is not required to store the

complete written application, nor is it required to enter the remaining items of information into

the system. If the transaction is subject to § 1002.13 or the creditor is collecting information

pursuant to § 1002.5(a)(4), however, the creditor is required to enter and retain the data on

personal characteristics in order to comply with the requirements of that section.

* * * * *

Section 1002.13—Information for Monitoring Purposes

13(a) Information to be requested.

* * * * *

Oct 2017 153

63

7. Data collection under Regulation C. For applications subject to § 1002.13(a)(1), a

creditor that collects information about the ethnicity, race, and sex of an applicant in compliance

with the requirements of appendix B to Regulation C, 12 CFR part 1003, is acting in compliance

with § 1002.13 concerning the collection of an applicant’s ethnicity, race, and sex information.

See also comment 5(a)(2)–2.

8. Application-by-application basis. For applications subject to § 1002.13(a)(1), a

creditor may choose on an application-by-application basis whether to collect aggregate

information pursuant to § 1002.13(a)(1)(i)(A) or disaggregated information pursuant to

§ 1002.13(a)(1)(i)(B) about the ethnicity and race of the applicant.

13(b) Obtaining of information.

1. Forms for collecting data. A creditor may collect the information specified in

§ 1002.13(a) either on an application form or on a separate form referring to the application.

Appendix B to this part provides for two alternative data collection model forms for use in

complying with the requirements of § 1002.13(a)(1)(i) and (ii) to collect information concerning

an applicant’s ethnicity, race, and sex. When a creditor collects ethnicity and race information

pursuant to § 1002.13(a)(1)(i)(A), the applicant must be offered the option to select more than

one racial designation. When a creditor collects ethnicity and race information pursuant to

§ 1002.13(a)(1)(i)(B), the applicant must be offered the option to select more than one ethnicity

designation and more than one racial designation.

* * * * *

13(c) Disclosure to applicants.

1. Procedures for providing disclosures. The disclosure to an applicant regarding the

monitoring information may be provided in writing. Appendix B provides data collection model

Oct 2017 154

64

forms for use in complying with § 1002.13 and that comply with § 1002.13(c). A creditor may

devise its own disclosure so long as it is substantially similar. The creditor need not orally

request the monitoring information if it is requested in writing.

* * * * *

Oct 2017 155

1

BILLING CODE: 4810-AM-P

BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Parts 1005 and 1026

Docket No. CFPB-2017-0015

RIN 3170-AA72

Amendments to Rules Concerning Prepaid Accounts Under the Electronic Fund Transfer

Act (Regulation E) and the Truth in Lending Act (Regulation Z)

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Proposed rule with request for public comment.

SUMMARY: The Bureau of Consumer Financial Protection (Bureau or CFPB) is proposing to

amend Regulation E, which implements the Electronic Fund Transfer Act, and Regulation Z,

which implements the Truth in Lending Act, and the official interpretations to those regulations.

This proposal relates to a final rule, published in the Federal Register on November 22, 2016 (81

FR 83934), as amended on April 25, 2017 (82 FR 18975), regarding prepaid accounts under

Regulations E and Z. This proposal requests comment on potential modifications to several

aspects of that rule, including error resolution and limitations on liability for prepaid accounts

where the financial institution has not completed its consumer identification and verification

process; application of the rule’s credit-related provisions to digital wallets that are capable of

storing funds; certain other clarifications and minor adjustments; and two issues relating to the

effective date of the rule.

DATES: Comments must be received on or before [INSERT DATE 45 DAYS AFTER DATE

OF PUBLICATION IN THE FEDERAL REGISTER].

Oct 2017 156

3

Counsels; and Kristine M. Andreassen and Krista Ayoub, Senior Counsels, Office of

Regulations, at (202) 435-7700.

SUPPLEMENTARY INFORMATION:

I. Summary of the Proposed Rule

On October 5, 2016, the Bureau released a final rule to create comprehensive consumer

protections for prepaid accounts under Regulation E, which implements the Electronic Fund

Transfer Act (EFTA),1 and Regulation Z, which implements the Truth in Lending Act (TILA)2

(2016 Final Rule).3 Through its efforts to support industry implementation of the 2016 Final

Rule, the Bureau learned in recent months that some industry participants believed that they

would have difficulty complying with certain provisions of the 2016 Final Rule that would have

gone into effect on October 1, 2017. To facilitate compliance, after notice and comment, the

Bureau extended the general effective date of the 2016 Final Rule to April 1, 2018 (2017

Effective Date Proposal and 2017 Effective Date Final Rule, respectively).4 The 2016 Final

Rule, as amended by the 2017 Effective Date Final Rule, is referred to herein as the Prepaid

Accounts Rule.

Based on feedback received by the Bureau through its outreach efforts to industry

regarding implementation of the 2016 Final Rule as well as in comments received on the 2017

Effective Date Proposal, the Bureau is proposing herein to amend several provisions of the

Prepaid Accounts Rule. These proposed revisions address, in part, certain issues that were

unanticipated by commenters on the notice of proposed rulemaking that led to the 2016 Final

1 15 U.S.C. 1693 et seq. 2 15 U.S.C. 1601 et seq. 3 81 FR 83934 (Nov. 22, 2016). 4 82 FR 13782 (Mar. 15, 2017); 82 FR 18975 (Apr. 25, 2017).

Oct 2017 157

4

Rule (2014 Proposal),5 and are intended to facilitate compliance and relieve burden on those

issues. In particular, the Bureau is proposing to:

Revise the error resolution and limited liability provisions of the Prepaid Accounts Rule

in Regulation E to provide that financial institutions would not be required to resolve

errors or limit consumers’ liability on unverified prepaid accounts. However, for

accounts where the consumer’s identity is later verified, financial institutions would be

required to limit liability and resolve errors with regard to disputed transactions that

occurred prior to verification, consistent with the timing requirements of the Prepaid

Accounts Rule.

Create a limited exception to the credit-related provisions of the Prepaid Accounts Rule

in Regulation Z for certain business arrangements between prepaid account issuers and

credit card issuers that offer traditional credit card products. This exception is designed

to address certain complications in applying the credit provisions of the Prepaid Accounts

Rule to credit card accounts linked to digital wallets that can store funds where the credit

card accounts are already subject to Regulation Z’s open-end credit card rules in

circumstances that appear to pose lower risks to consumers.

Make clarifications or minor adjustments to provisions of the Prepaid Accounts Rule

related to an exclusion from the definition of prepaid account, unsolicited issuance of

access devices, several aspects of the rule’s pre-acquisition disclosure requirements, and

submission of prepaid account agreements to the Bureau, as described in detail below.

5 The Bureau released its proposal regarding prepaid accounts under Regulations E and Z, including model and sample disclosure forms, for public comment on November 13, 2014. 79 FR 77102 (Dec. 23, 2014). The Bureau had previously issued an advance notice of proposed rulemaking that posed a series of questions for public comment about how the Bureau might consider regulating general purpose reloadable cards and other prepaid products. 77 FR 30923 (May 24, 2012).

Oct 2017 158

The 2016 Federal Reserve Payments Study (2016 study) is the sixth in a series of triennial

studies conducted since 2001 by the Federal Reserve System to estimate aggregate trends in

noncash payments in the United States using data collected from surveys of depository insti-

tutions, payment networks, issuers, and processors.1 The 2016 study covers the total number

and value of all noncash payments estimated to have been made in 2015 in the United States

by consumers and businesses. Businesses are defined in the study to include for-profit and

not-for-profit, private enterprises, as well as federal, state, and local government agencies.2

The data that accompany this brief supplement the initial release of data in December 2016

with more details for 2015 on core noncash payment types, allocations of checks written by

counterparty and purpose, and information about emerging and innovative payment initia-

tion services and payment methods.3 This brief highlights key details revealed by the new

data, including (1) differences between consumer and business payment choices in 2015 and

changes over the 15-year period since 2000; (2) the adoption and intensity of use of different

types of general-purpose payment cards in 2015, along with more recent changes since 2012;

and (3) the growth in selected alternative payment initiation methods and services, such as

payments initiated via a mobile device (i.e., mobile wallet), payments through specialized ser-

vices for person-to-person payments, and the use of online (i.e., e-commerce) payment

authentication services to help verify the payer and secure the payment information.

Key Findings

• Since 2000, consumers and businesses have substantially changed their payment choices,

with check payments primarily being replaced with card payments and electronic transfers

via the automated clearinghouse (ACH) system. In 2015, checks written accounted for

13.4 percent of noncash payments and 15.4 percent of their value, compared with 57.8 per-

cent of noncash payments and 66.7 percent of their value in 2000.

• In 2015, households wrote 7.1 checks per month, on average, 36.9 percent of the 19.3

checks they wrote per month in 2000. During the same period, total noncash payments per

household expanded. In 2015, households made 78.6 noncash payments per month, on

average, about 94.7 percent more than the 40.3 noncash payments they made per month in

2000.

1 This brief was produced by Geoffrey R. Gerdes, Jonathan Hamburg, and Xuemei (May) Liu of the Board ofGovernors of the Federal Reserve System. The authors wish to thank Daniel Nikolic for excellent research assis-tance. The authors also wish to acknowledge the joint collaborative work effort of the 2016 study team membersfrom the Federal Reserve Bank of Atlanta—specifically, the Retail Payments Risk Forum and the Retail PaymentsOffice—staff from Blueflame Consulting, LLC, of Melrose, Mass., and staff from the Global Insights office ofMcKinsey and Co. The data collection and research discussed in this brief are sponsored by the Federal ReserveSystem.

2 Although government entities often behave differently than private businesses, most survey questions askedrespondents to include government payments in business payments. Private businesses and government entities arebelieved to exhibit distinctly different payments behavior compared to consumers. The Federal Reserve Banks pro-cess and can distinguish payments conducted by the U.S. Treasury and many federal agencies, but a discussion ofsuch payments is out of the scope of this brief.

3 See Board of Governors of the Federal Reserve System and Federal Reserve System, The Federal Reserve Pay-ments Study 2016 (Washington: Board of Governors, December 2016), www.federalreserve.gov/newsevents/press/other/2016-payments-study-20161222.pdf.

The Federal Reserve PaymentsStudy 2016: RecentDevelopments in Consumer andBusiness Payment ChoicesA Federal Reserve System publication

Oct 2017 159

• In 2015, businesses wrote 24.1 checks per month, on average, about 36.5 percent of the 66.0

checks they wrote per month in 2000. Businesses also made 29.8 ACH transfers per month,

on average, in 2015, 222.0 percent of the 13.4 ACH payments they made per month in

2000. In 2015, businesses made 73.6 noncash payments per month, on average, 92.6 percent

of the 79.5 noncash payments they made per month in 2000. While total noncash payments

per business fell somewhat, the combined value of business ACH transfers and business

checks written reached $148.54 trillion in 2015, which alone was more than double the real

value of total ACH transfers and checks written in 2000 ($73.78 trillion). In 2015, busi-

nesses made about 19.7 card payments per month, on average. The total value of business

card payments was quite small, however, relative to other business payment types.

• The aggregate ranking in 2015 of the number of payments by payment type differed sub-

stantially between consumers and businesses. The top four consumer payment types were

non-prepaid debit cards, general-purpose credit cards, checks, and ACH debit transfers.4 In

contrast, the top four business payment types were ACH credit transfers, checks, general-

purpose credit cards, and non-prepaid debit cards.

• Payments made with general-purpose credit cards and with non-prepaid debit cards each

grew faster than other payment types from 2012 to 2015, in terms of both percentage

growth and growth by number. Despite this rapid growth, there was relatively little change

in the number of payments per active card—that is, per card with at least one purchase per

month—during the same period. For consumer non-prepaid debit cards, the average num-

ber of payments per active card rose slightly, from 21.9 payments per month in 2012 to 22.8

in 2015. For consumer general-purpose credit cards, the average number of payments per

active card fell slightly, from 10.1 payments per month in 2012 to 8.6 in 2015. There were

about 14.9 and 15.2 payments per month per active business general-purpose credit and

non-prepaid debit card, respectively, in 2015. Business credit card payments were down

from 18.3 payments per active card in 2012, while business payments per active non-prepaid

debit card were relatively flat.

• New data on consumer general-purpose credit card spending show that 60.4 percent of all

accounts (and 76.1 percent of all balances) included at least some debt revolving between

statement periods, while the remaining 39.6 percent of all accounts (and 23.9 percent of all

balances) were being paid in full at the end of each month, or had no current spending, on

average, across the months in 2015.

• Growth in payments using alternative payment methods and services was high from 2012 to

2015. Compared to the total number and value of noncash payments, however, the total

number and value of payments using these methods and services remained low.

The Changing Payments Landscape

Taken together, prepaid and non-prepaid debit cards, credit cards, ACH credit and debit trans-

fers, and checks compose a core set of noncash payment types commonly used today by con-

sumers and businesses in the United States. These core noncash payment types are used both

in traditional ways, such as in-person purchases and payroll deposits, and in relatively new

ways, such as mobile and e-commerce payments.

4 Consumers wrote more checks than they initiated ACH debit transfers. By agreement, some of those checks wereconverted to ACH debit transfers by the payee, which were then cleared and settled through the ACH systeminstead of the check system. In 2015, about 2.1 billion of these checks were converted to ACH debit transfers,more than enough for the number of consumer ACH debit transfers to exceed the number of consumer checkspaid where checks were cleared and settled, through the check system.

2 The Federal Reserve Payments Study 2016

Oct 2017 160

Choose an overdraft option

An overdraft occurs when you don’t have enough money in your account to cover a transaction, but we pay it anyway.

Here are two options:

Keep: Bill payments and checksThis option comes with your account. We generally let your online bill payments and checks go through and decline your debit card transactions and ATM withdrawals.

Or switch to: All transactionsIf you switch to this option, we may also authorize ATM withdrawals and debit card transactions that overdraw your account. If we do, we’ll charge an overdraft fee.

ATM overdraft fee No fee $34

Debit card overdraft fee No fee $34

Online bill payment overdraft fee $34 $34

Check overdraft fee $34 $34

Maximum number of fees 6 overdraft fees per day 6 overdraft fees per day

Negative balance fee After you overdraft, we charge $5 every fifth business day if your account stays negative.

After you overdraft, we charge $5 every fifth business day if your account stays negative.

FICUSBank

Link an account to lower your fees. You can link this account to a savings account, credit card, or line of credit. We’ll use the money from the linked account to pay transactions that overdraw your account.

For more information about your options, call Ficus Bank at 800-435-7000 or visit FicusBank.com/overdraft. For tools to help you make your overdraft decision, Visit consumerfinance.gov/overdraft. (español |中文 | … )

Mail to

FICUS BANK123 MAIN STDES MOINES, IA 50319

Account ending in 1022

Printed name _______________________________________

Signature __________________________________________

Date _______________________________________________

Switch to all transactions option I understand that Ficus Bank may authorize any transaction even if it overdraws my account. I will be charged $34 for each overdraft.

Keep bill payment and checks option I will not pay overdraft fees on ATM withdrawals or debit card transactions.

Oct 2017 161

Choose an overdraft option

An overdraft occurs when you don’t have enough money in your account to cover a transaction, but we pay it anyway.

Here are two options:

Keep: Bill payments and checksThis option comes with your account. We generally let your online bill payments and checks go through and decline your debit card transactions and ATM withdrawals.

Or switch to: All transactionsIf you switch to this option, we may also authorize ATM withdrawals and debit card transactions that overdraw your account. If we do, we’ll charge an overdraft fee.

ATM overdraft fee No fee $34

Debit card overdraft fee No fee $34

Online bill payment overdraft fee $34 $34

Check overdraft fee $34 $34

Maximum number of fees 6 overdraft fees per day 6 overdraft fees per day

Negative balance fee After you overdraft, we charge $5 every fifth business day if your account stays negative.

After you overdraft, we charge $5 every fifth business day if your account stays negative.

FICUSBank

Link an account to lower your fees. You can link this account to a savings account, credit card, or line of credit. We’ll use the money from the linked account to pay transactions that overdraw your account.

For more information about your options, call Ficus Bank at 800-435-7000 or visit FicusBank.com/overdraft. For tools to help you make your overdraft decision, Visit consumerfinance.gov/overdraft. (español |中文 | … )

To switch to all transactions option: Please complete this form.

I understand that Ficus Bank may authorize any transaction even if it overdraws my account. I will be charged $34 for each overdraft.

To keep the current option: There is nothing you need to do. You will not pay overdraft fees on ATM withdrawals or debit card transactions.

Mail to

FICUS BANK123 MAIN STDES MOINES, IA 50319

Account ending in 1022

Printed name _______________________________________

Signature __________________________________________

Date _______________________________________________Oct 2017 162

You have two options: Keep: Bill payments and checks

Or switch to: All transactions

ATM overdraft fee No fee $34

Debit card overdraft fee No fee $34

Online bill payment overdraft fee $34 $34

Check overdraft fee $34 $34

Maximum number of fees 6 overdraft fees per day 6 overdraft fees per day

Negative balance fee After you overdraft, we charge $5 every fifth business day if your account stays negative.

After you overdraft, we charge $5 every fifth business day if your account stays negative.

Compare options with these examples Example: You plan to spend $25 at the store using your debit card

Your account has $10

Your transaction is declined because there’s not enough money in your account - $0

Overdraft fees - $0

You still have $10

Example: You spend $25 at the store using your debit card

Your account has $10

Your transaction’s approved even though there’s not enough money in your account - $25

Overdraft fees - $34

FICUSBank

Link an account to lower your fees. You can link this account to a savings account, credit card, or line of credit. We’ll use the money from the linked account to pay transactions that overdraw your account.

For more information about your options, call Ficus Bank at 800-435-7000 or visit FicusBank.com/overdraft. For tools to help you make your overdraft decision, Visit consumerfinance.gov/overdraft. (español |中文 | … )

Switch to all transactions option I understand that Ficus Bank may authorize any transaction even if it overdraws my account. I will be charged $34 for each overdraft.

Keep bill payment and checks option I will not pay overdraft fees on ATM withdrawals or debit card transactions.

Mail to

FICUS BANK123 MAIN STDES MOINES, IA 50319

Account ending in 1022

Printed name _______________________________________

Signature __________________________________________

Date _______________________________________________

Choose an overdraft optionWhat happens when there’s not enough money in your account

You now have $49

Oct 2017 163

Choose an overdraft option

$34 per overdraftAn overdraft occurs when you don’t have enough money for a transaction, but we pay it anyway.

Up to 6 overdraft fees/daySix overdraft fees is $204.

$5 negative balance feeAfter you overdraft, we charge $5 every fifth business day if your account stays negative.

Keep: Bill payments and checksThis option comes with your account. We generally let your online bill payments and checks go through and decline your debit card transactions and ATM withdrawals.

Or switch to: All transactionsIf you switch to this option, we may also authorize ATM withdrawals and debit card transactions that overdraw your account. If we do, we’ll charge an overdraft fee.

Online bill payment overdraft fee $34 Online bill payment overdraft fee $34

Check overdraft fee $34 Check overdraft fee $34

Debit card transaction attempt No fee Debit card transaction overdraft fee $34

ATM withdrawal attempt No fee ATM withdrawal overdraft fee $34

DECIDE WHEN WE COVER YOUR OVERDRAFTS

FICUSBank

Keep bill payment and checks option I will not pay overdraft fees on ATM withdrawals or debit card transactions.

Switch to all transactions option I understand that Ficus Bank may authorize any transaction even if it overdraws my account. I will be charged $34 for each overdraft.

REVIEW OVERDRAFT-RELATED FEES

Mail to

FICUS BANK123 MAIN STDES MOINES, IA 50319

Account ending in 1022

Printed name _______________________________________

Signature __________________________________________

Date ______________________________________________

Link an account to lower your fees. You can link this account to a savings account, credit card, or line of credit. We’ll use the money from the linked account to pay transactions that overdraw your account.

For more information about your options, call Ficus Bank at 800-435-7000 or visit FicusBank.com/overdraft. For tools to help you make your overdraft decision, Visit consumerfinance.gov/overdraft. (español |中文 | … )

Oct 2017 164

CFPB Takes Action Against JPMorgan Chase for Failures Related to Checking Account Screening InformationBureau’s Order Requires Bank to Pay $4.6 Million Penalty

AUG 02, 2017

WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) today took action against JPMorgan Chase Bank, N.A. for failures related to information it provides for checking account screening reports. Banks screen potential customers based on reports about prior checking account behavior created by consumer reporting companies. Banks that supply information for those reports are legally required to have proper processes in place for reporting accurate information. Chase did not have these processes in place and kept consumers in the dark about the results of their reporting disputes and key aspects of their checking account application denials. The Bureau is ordering Chase to pay a $4.6 million penalty and implement necessary changes to its policies to prevent future legal violations.

“Information about checking account behavior is used to determine who can open a bank account,” said CFPB Director Richard Cordray. “Because Chase did not have the required processes to report this information accurately, and kept consumers in the dark about reporting disputes and application denials, the Consumer Bureau is imposing a $4.6 million penalty and other measures to stop these violations in the future.”

Chase is a national bank based in Columbus, Ohio that provides numerous consumer financial products and services, including checking and savings accounts, money market accounts, mortgages, personal loans, credit cards, and auto loans. Chase furnishes information about its checking accounts to nationwide specialty consumer reporting companies. These companies which include Chex Systems and Early Warning Systems, collect and report negative information about consumer

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Oct 2017 165

We're the Consumer Financial Protection Bureau (CFPB), a U.S. government agency that makes sure banks, lenders, and other financial companies treat you fairly.

Learn how the CFPB can help you

UPDATED DEC 08, 2016

How do I get a copy of the report banks use to decide whether to let me open a checking account?

Some banks and credit unions use checking account reports to help decide whether to offer consumers a checking account. Checking account reporting companies compile these reports using information from other banks and credit unions about consumers’ checking account and transaction history.

To get a copy of your checking account report, you have to request your report from the checking account reporting company that compiled your report. These companies include Chex Systems, Early Warning Services, Certegy, and Telecheck. The contact information for these companies is below. See a more complete list of consumer reporting companies.

TIP

: Get more information about how banks or credit unions use these reports.

In many instances, you will be able to request a free copy of your report:

• By law, you have the right to request a free copy of your checking account report every 12 months from the nationwide checking account reporting companies. You have to request the reports individually from each company.

• You also have the right to request a copy of your report from other checking account reporting companies, although some may charge you a fee.

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Oct 2017 166

• You are also entitled to a free copy if you have received an “adverse action” notice. For example, if a bank or credit union turns you down for a checking account based on a report, the bank has to give you a notice that includes the name and contact information of the checking account reporting company that provided the report. You can contact the reporting company and request a free copy of the report.

TIP

: If you’ve had difficulty opening or managing a checking account, see our consumer guides on choosing and managing checking accounts.

See our consumer guide to selecting a lower risk accountSee our consumer guide to managing your checking accountSee our consumer guide to checking account denials

You might also consider getting a prepaid card.

Review your consumer report carefully and make sure the information is accurate. Your report should indicate which bank, credit union, or company provided the information in your report. If you find any errors or inaccurate information, you have the right to dispute that information. Get more information about how to dispute information in your checking account report.

You can use the contact information, below, to request a free copy of your own report from the largest checking account reporting companies. Not every company has information on everyone.

ChexSystemsRequest your report onlineOr call (800) 428-9623

Send a written request to: Chex Systems, Inc. 7805 Hudson Road, Suite 100 Woodbury, MN 55125

Early Warning SystemRequest your report onlineOr call Consumer Services: (800) 325-7775 Monday - Friday 8:00 a.m. - 5:00 p.m. (MT)

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Oct 2017 167

Early Warning's Consumer Services provides interpretation services for more than 160 languages.

TelecheckRequest your report onlineOr call (800) 366-2425

or write:

TeleCheck Services, Inc. Attention: Consumer Resolution – FA P.O. Box 4514 Houston, TX 77210-4515

CertegyRequest your report onlineOr call (866) 543-6315

or write:

Certegy Check Services, Inc. P.O. Box 30296 Tampa, FL 33630-3296

Get Help

◾ Submit a complaintWe’ll forward your issue to the company, give you a tracking number, and keep you updated on the status of your complaint.

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number, or social security number in this field.

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Oct 2017 168

#2017-063 UNITED STATES OF AMERICA

DEPARTMENT OF THE TREASURY COMPTROLLER OF THE CURRENCY

In the Matter of: UMB Bank, N.A. Kansas City, Missouri

) ) ) ) ) )

AA-EC-2017-15

CONSENT ORDER FOR A CIVIL MONEY PENALTY

The Comptroller of the Currency of the United States of America (“Comptroller”),

through his national bank examiners and other staff of the Office of the Comptroller of the

Currency (“OCC”), has conducted an examination of UMB Bank, N.A., Kansas City, Missouri

(“Bank”). The OCC has identified deficiencies in the Bank’s practices that resulted in violations

of Section 5 of the Federal Trade Commission Act (“FTC Act”), 15 U.S.C. § 45(a)(1), related to

billing practices with regard to an identity theft protection product, and has informed the Bank of

the findings resulting from the examination.

The Bank, by and through its duly elected and acting Board of Directors (“Board”), has

executed a Stipulation and Consent to the Issuance of an Order for a Civil Money Penalty, dated

August 1 , 2017, that is accepted by the Comptroller (“Stipulation”). By this Stipulation, which

is incorporated herein by reference, the Bank has consented to the issuance of this Consent Order

for a Civil Money Penalty (“Order”) by the Comptroller.

Oct 2017 169

ARTICLE I

COMPTROLLER’S FINDINGS

The Comptroller finds, and the Bank neither admits nor denies, the following:

(1) From June 2009 to February 2013, the Bank marketed and sold Fraud Protection

Plus, an identity protection product offered through an Identity Protection Product Vendor, to

Bank customers. The Bank marketed the product through direct mail campaigns until April

2011, and offered the product on its website and in branches until February 2013. The Fraud

Protection Plus product included credit monitoring and credit report retrieval services, among

others.

(2) The Bank customers who enrolled in the Fraud Protection Plus product were

required to provide sufficient personal verification information and consent before their credit

monitoring services could begin and their credit bureau reports could be accessed. Customers

could not receive the credit monitoring and/or credit report retrieval services of the Fraud

Protection Plus product in which they were enrolled until the information and consent were

submitted.

(3) From June 2009 to April 2014, the Bank billed Fraud Protection Plus customers

for the full fee of the product, even though not all customers were receiving the credit monitoring

and/or credit report retrieval services of the product.

(4) From June 2009 to April 2014, the Bank retained a portion of the fees paid by the

Fraud Protection Plus customers, including fees paid by the customers who were not receiving

the credit monitoring and/or credit report retrieval services.

(5) By reason of the billing practices for the Fraud Protection Plus product described

in Paragraphs (1) to (4) of this Article, which were the result of deficient vendor management

Oct 2017 170

practices, the Bank engaged in unfair practices in violation of Section 5 of the FTC Act, 15

U.S.C. § 45(a)(1).

(6) The Bank’s violation of Section 5 of the FTC Act caused substantial consumer

injury or was likely to cause substantial consumer injury.

(7) The Bank’s violation of Section 5 of the FTC Act is part of a pattern of

misconduct that resulted in financial gain to the Bank.

ARTICLE II

ORDER FOR A CIVIL MONEY PENALTY

Pursuant to the authority vested in him by the Federal Deposit Insurance Act, 12 U.S.C.

§ 1818(i), the Comptroller orders, and the Bank consents to the following:

(1) The Bank shall make payment of a civil money penalty in the total amount of one

million and five hundred thousand dollars ($1,500,000), which shall be paid upon the execution

of this Order:

(a) If a check is the selected method of payment, the check shall be made

payable to the Treasurer of the United States and shall be delivered to:

Comptroller of the Currency, P.O. Box 979012, St. Louis, Missouri

63197-9000.

(b) If a wire transfer is the selected method of payment, it shall be sent in

accordance with instructions provided by the Comptroller.

(c) The docket number of this case (AA-EC-2017-15) shall be entered on the

payment document or wire confirmation and a photocopy of the payment

document or confirmation of the wire transfer shall be sent immediately,

by overnight delivery, to the Director of Enforcement and Compliance,

Oct 2017 171

Introduction This Comptroller’s Licensing Manual booklet, “Branch Closings,” contains a discussion of key policies and requirements for filings and customer notices pertaining to closings of national bank and federal savings association (FSA) branches. In this booklet, national banks and FSAs are collectively referred to as banks, unless otherwise noted. The booklet includes a glossary of terms and a reference section. Section 42 of the Federal Deposit Insurance Act (section 42), 12 USC 1831r-1, requires insured depository institutions to submit advance notice of any proposed branch closing to the institution’s primary federal regulator. Advance notification to the Office of the Comptroller of the Currency (OCC) and bank customers must follow specific timing and content requirements. The OCC is the primary regulator of national banks and FSAs. Section 42 requires insured banks to notify customers of a proposed closing by mail and by posting notice at the branch location to be closed. Section 42 contains additional notice requirements and provisions concerning an interstate bank proposing to close a branch in a low- or moderate-income area. The section 42 interstate bank notice requirements and provisions do not apply to an FSA. Section 42 also requires that insured banks adopt policies for branch closings. Section 42 does not provide authority for the primary regulator to prohibit the closing of a branch. The notice requirement under section 42 assists the OCC in assessing a bank’s record of opening and closing branches. The OCC reviews this record in conjunction with its examination for compliance with section 42 and in assessing performance under the Community Reinvestment Act (CRA). The OCC, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation (FDIC) adopted a “Joint Policy Statement on Branch Closing Notices and Policies” (Joint Policy Statement) in June 19991 to provide guidance regarding the requirements of the branch closing statute.

1 64 FR 34944, June 29, 1999.

Oct 2017 172

Key Policies

Branch Closing Notice Requirements

Notice to the OCC A bank that plans to close a branch office must notify the OCC. OCC notification is generally a two-step process. The first step is a 90-day advance notice sent to the appropriate OCC licensing office. The second step is a final branch closing notice sent to the appropriate OCC licensing office indicating the effective closing date. Advance Closing Notice A 90-day advance branch closing notice must be filed with the OCC in the following cases: • A branch closes in the normal course of business. • A branch closes as a result of a merger or other form of acquisition, such as a purchase

and assumption, and no exception applies. While either bank may provide the required notice to customers, if the branch closes before consummation of the merger, the selling bank generally notifies its regulator. If the branch closes after consummation of the merger, the purchaser typically notifies its regulator.

• A branch relocates2 outside of its immediate neighborhood. An advance branch closing notice is not required when a branch is sold to another institution and the branch will continue to operate at the same location under the new owner. A bank’s 90-day advance notice to the OCC should include all of the information contained in the sample Advance Branch Closing Notice. This information includes the following items: • Identification of the branch to be closed (popular name, address, county, and OCC-

assigned branch number). • The proposed closing date. • A detailed statement of the reasons for closing the branch. • Statistical or other information that supports the reasons for closing the branch consistent

with the bank’s written policies on branch closings. • Confirmation that the required advance notice to customers has been or will be made. In addition, the bank should include a copy of the 90-day advance notice that has been or will be provided to customers.

2 Relocation of a branch may require a separate application to the OCC. Refer to 12 CFR 5.30 (national banks) and 5.31 (FSAs). Refer to the Comptroller’s Licensing Manual booklet, “Branches and Relocations.”

Oct 2017 173

Final Branch Closing Notice to the OCC Immediately after the branch closes, the bank must submit a Final Branch Closing Notice to the appropriate OCC licensing office. The final notice should • list the branch popular name, address, county, and OCC-assigned branch number. • specify the date of the closing. • for branches subject to the advance notice of branch closing requirements, include a

statement that the bank provided the statutory 90-day advance notice of branch closing to its customers.

A final branch closing notice to the OCC is not required when the branch relocates outside of the immediate neighborhood and will continue to operate at a new location, but a 90-day advance notice of the closing is required. While a final branch closing notice is not required, the bank should notify the OCC of the effective relocation date. A bank should notify the OCC of the effective date of the sale when the bank sells a branch to an institution not regulated by the OCC. The notice of the effective date of the sale permits the OCC to update its records of the selling institution’s branches.

Notice to Customers Unless an exception to the notice of branch closing requirements applies, a bank must provide affected customers notice by mail at least 90 days before the proposed branch closing. The notice may be included in the account statement mailing or sent in a separate mailing. In addition, the bank shall post the notice to branch customers in a conspicuous manner on the premises of the branch proposed to be closed at least 30 days before the proposed closing. In the case of a mobile branch or messenger service branch, the notice must be posted in a conspicuous place on the unit or vehicle. The notice shall remain posted on the branch premises until the branch closes. The mailed notice to customers should contain • the location of the branch proposed to be closed. • the proposed date of closing. • information on where customers may obtain banking services following the closing date,

or a telephone number or website address for customers to contact to determine alternate location(s) of services.

A bank is expected to develop a reasonable method of allocating customers to specific branches, such as a location where a deposit or loan account was opened or through use. The OCC recognizes, however, that a reasonable method of allocation may result in certain facilities that technically constitute branches not being assigned customers. In such cases, a notice to the OCC that the branch will close and a posting of the notice on the branch premises suffices. The OCC does not require that a bank change its record-keeping system to make a reasonable determination of who is a customer of a branch.

Oct 2017 174

If customers are assigned to a mobile branch or messenger service branch (collectively, mobile branch), normal customer notification requirements apply. If no customers are assigned to the mobile branch, then posting a notice on the mobile branch suffices.

Applicability of Branch Closing Requirements Section 42 applies to the closing of a branch by an insured depository institution. The Joint Policy Statement defines a branch as a traditional brick-and-mortar branch, or any similar banking facility other than a main office, at which deposits are received, checks paid, or money lent.

Facilities Not Covered Closings of the following non-branch facilities are not covered by branch closing notice requirements: • Automated teller machines (ATM) • Main or home offices • Temporary branches3 • Remote service facilities • Night depositories • Trust offices • Loan or deposit production offices • Administrative offices • Data-processing offices • Electronic facilities • FSA agency offices

Certain Relocations and Consolidations Not Covered The branch closing provisions of section 42 do not apply when • one or more branches relocate, within the immediate neighborhood of the branch, and

this action does not substantially affect the nature of the business or the customers served.4 Consolidations of branches are considered relocations for the purposes of section 42 if the branches are located within the same neighborhood and the nature of the business or customer served is not affected.

3 National banks should refer to 12 CFR 5.30(d)(6). 4 The Joint Policy Statement provides that “relocations generally will be found to occur only when short distances are involved.” “Short distance” is defined in 12 CFR 5.3(l) as (1) within a 1,000-foot radius of the current location of the branch if it is located within the principal city of a metropolitan statistical area (MSA); (2) within a one-mile radius of the current location of the branch if the branch is not located within a principal city, but is within an MSA; or (3) within a two-mile radius of the branch if it is not located in an MSA.

Oct 2017 175

• a branch closes in connection with an emergency acquisition or any assistance provided by the FDIC.5

• a bank acquires a branch of a failed institution per agreement with the FDIC and transfers the branch back to the FDIC pursuant to the terms of the agreement within 180 days of the acquisition.

Interruption of Services

Branch closing requirements do not apply when a bank ceases operations at a branch due to events beyond the bank’s control, if the bank intends to restore branching services at the same location in a timely manner. Events beyond the bank’s control generally include natural catastrophes, such as a fire or flood. If the bank decides not to reopen the branch following the incident, the bank must provide customer and regulatory notice as soon as possible after the decision is made not to reopen the branch. A bank is not required to notify the OCC of a closing caused by a temporary interruption of service, but it would normally be sound practice to do so. Under certain circumstances, such as during emergencies, a bank may establish branches under expedited procedures. For further information on emergency branches, contact the appropriate OCC licensing office or refer to the “Branches and Relocations” booklet of the Comptroller’s Licensing Manual.

Reduction of Services A bank may alter the operations conducted at a branch without being subject to the branch closing requirements, provided that the facility remains a branch. For example, the branch’s hours of operation may be reduced, certain functions or services previously provided at that location may be eliminated, or a national bank branch may be downgraded to a night depository. Nevertheless, a bank should consider providing appropriate advance notice of service changes to customers as a good business practice even when statutory branch closing requirements are not applicable.

Mobile Branch/Messenger Service Operations A mobile branch or messenger service branch is subject to the branch closing notice requirements if • it will cease conducting branching transactions in the geographic area for which it was

approved, or • changes in services constitute a branch downgrade subject to branch closing requirements

(e.g., a staffed mobile branch is replaced by a mobile remote service unit).

5 Refer to 12 USC 1821(n) and 1823(c), (f), and (k).

Oct 2017 176

Termination of Lease A bank with a leased branch location may be informed by the location’s owner that the lease will be terminated or not renewed. The loss of a lease arrangement does not exempt the bank from the branch closing notice requirements. The OCC does not waive or shorten the requirements. To provide the bank with sufficient time to comply with the 90-day notice provision of 12 USC 1831r-1, lease agreements should incorporate adequate safeguards, such as a 120-day advance notice provision for termination or nonrenewal.

Requirements Applicable to Interstate National Banks For branch closing purposes, a national bank with branches in more than one state is an interstate bank.6 Additional notice requirements apply to an interstate national bank proposing to close a branch located in a low- or moderate-income area.7 In addition to the standard notice requirements, the notice to customers and the notice placed on the branch premises must also contain • the mailing address of the appropriate OCC licensing office. • a statement indicating that comments on the branch closing may be mailed to that office. The Joint Policy Statement recommends the notice state that the OCC does not have the authority to approve or prevent the branch closing.

Meetings When an interstate national bank proposes to close a branch in a low- or moderate-income area, the law provides a process for convening a meeting. In accordance with 12 USC 1831r-1 and the Joint Policy Statement, the OCC convenes a meeting if all of the following criteria are met: • The OCC receives a written request relating to the closing of the branch from a person in

the area where the branch is located. • The request includes a statement of specific reasons for the request, including a

discussion of the closing’s adverse effect on the availability of banking services in the area affected by the branch closing.

• The OCC concludes that the request is not frivolous. When all these criteria are met, the OCC consults with community leaders in the area affected by the closing and convenes a meeting of OCC representatives; representatives of other interested depository institution regulatory agencies; community leaders in the affected area; and other such individuals, organizations, and depository institutions as the agency

6 Refer to 12 USC 1831r-1(d)(4)(A). 7 Refer to the glossary of this booklet.

Oct 2017 177

deems appropriate. The meeting’s purpose is to explore the feasibility of obtaining adequate alternate services for the affected area following the closing of the branch.

Federal Savings Associations The section 42 additional notice and process requirements for interstate banks closing branches in low- or moderate-income areas do not apply to an FSA. FSAs must follow the standard customer and regulatory notice requirements.

Branch Closing Policy Banks with one or more branches must adopt written policies for branch closings. The Joint Policy Statement provides guidance for banks developing branch closing policies and recommends that policies meet the size and needs of the bank. During the normal supervisory process, the OCC determines whether a bank has adopted a branch closing policy.

Community Reinvestment Act In its evaluation of a bank’s performance under the CRA and the assignment of CRA ratings, the OCC • reviews a bank’s record of opening and closing offices. • evaluates the effect of those openings and closings on the affected communities. • considers comments received on branch closings. The OCC considers CRA performance when acting on applications by a bank to merge with another institution, establish a new branch, or relocate a branch or a main or home office.

Oct 2017 178

Summary of Requirements Tables 1 and 2 illustrate the specific branch closing notice requirements to the OCC for various closings. In addition to any branch closing notice requirement, a relocation of a branch may also require an additional or separate application or notice. Table 1: Notice Requirements for National Banks

National banks Advance branch closing notice

Final branch closing notice

Brick-and-mortar branch closing Yes Yes

Branch downgrade to ATM Yes Yes

Night depository closing No Yes

Mobile branch closing Yes Yes

Messenger service closing Yes Yes

Intermittent branch Yes Yes

Branch consolidation No Yes

Short-distance relocation No No

Relocation (not short distance) Yes No

Relocation or closing of a main officea No No

Trust office closing No No

Closing of a temporary branch No Yes

ATM closing No No

Emergency acquisitions/FDIC assistanceb No Yes

Loan production/deposit production office closing

No No

Remote service unit closing No No

Branch is sold to an institution not supervised by the OCC, but the branch continues to operate at the same location

No Yes

a Refer to 12 CFR 5.40 for application or notice requirements. b Applies only to branches transferred back to the FDIC pursuant to a failed bank acquisition agreement if closed within the

180-day “put-back” period. Branch closings after the “put-back” period must follow branch closing procedures.

Oct 2017 179

Table 2: Notice Requirements for FSAs

FSAs Advance branch closing notice

Final branch closing notice

Brick-and-mortar branch closing Yes Yes

Branch downgrade to ATM Yes Yes

Night depository closing No No

Mobile branch closing Yes Yes

Branch consolidation No Yes

Short-distance relocation No No

Relocation (not short distance) Yes No

Relocation or closing of a home officea No No

Closing of a temporary branch No Yes

ATM closing No No

Agency office closing No No

Emergency acquisitions/FDIC assistanceb No Yes

Remote service unit closing No No

Branch is sold to an institution not supervised by the OCC, but the branch continues to operate at the same location

No Yes

a Refer to 12 CFR 5.40 for application or notice requirements. b Applies only to branches transferred back to the FDIC pursuant to a failed bank acquisition agreement if closed within the 180-day “put back” period. Branch closings after the “put-back” period must follow branch closing requirements.

Oct 2017 180

References In this section, “NB” denotes that the referenced law, regulation, or issuance applies to national banks, and “FSA” denotes the reference applies to federal savings associations. Branches Law 12 USC 36 (NB), 12 USC 1464(m), 1464(r) (FSA) Regulation 12 CFR 5.30 (NB), 12 CFR 5.31 (FSA) Branch Closings Law 12 USC 1831r-1 (NB and FSA) Community Reinvestment Act of 1977 Law 12 USC 2901 et seq. (NB and FSA) Regulation 12 CFR 25 (NB), 12 CFR 195 (FSA)

Oct 2017 181

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Home » Tips & Advice » Business Center » Guidance » Children’s Online Privacy Protection Rule: A Six-Step Compliance Plan for YourBusiness

Children’s Online Privacy Protection Rule: A Six-StepCompliance Plan for Your BusinessTAGS: Privacy and Security Children's Privacy

RELATED RULE: Children's Online Privacy Protection Rule ("COPPA")

A step-by-step plan for determining if your company is covered by COPPA — and how to comply with the Rule.

When it comes to the collection of personal information from children under 13, the Children’s Online Privacy Protection Act(COPPA) puts parents in control. The Federal Trade Commission, the nation’s consumer protection agency, enforces theCOPPA Rule, which spells out what operators of websites and online services must do to protect children’s privacy and safetyonline. For example, if your company is covered by COPPA, you need to have certain information in your privacy policy andget parental consent before collecting some types of information from kids under 13.

Effective July 1, 2013, the FTC updated the COPPA Rule to reflect changes in technology. Violations can result in lawenforcement actions, including civil penalties, so compliance counts.

Here’s a step-by-step plan for determining if your company is covered by COPPA — and what to do to comply with the Rule.

TABLE OF CONTENTSStep 1: Determine if Your Company is a Website or Online Service that Collects Personal Information from Kids Under13.

Step 2: Post a Privacy Policy that Complies with COPPA.

Step 3: Notify Parents Directly Before Collecting Personal Information from Their Kids.

Step 4: Get Parents’ Verifiable Consent Before Collecting Personal Information from Their Kids.

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Step 5: Honor Parents’ Ongoing Rights with Respect to Personal Information Collected from Their Kids.

Step 6: Implement Reasonable Procedures to Protect the Security of Kids’ Personal Information.

Chart: Limited Exceptions to COPPA’s Verifiable Parental Consent Requirement

STEP 1: DETERMINE IF YOUR COMPANY IS A WEBSITE OR ONLINE SERVICE THATCOLLECTS PERSONAL INFORMATION FROM KIDS UNDER 13.COPPA doesn’t apply to everyone operating a website or other online service. Put simply, COPPA applies to operators ofwebsites and online services that collect personal information from kids under 13. Here’s a more specific way of determining ifCOPPA applies to you. You must comply with COPPA if:

Your website or online service is directed to children under 13 and you collect personal information from them.

OR

Your website or online service is directed to children under 13 and you let others collect personal information from them.

OR

Your website or online service is directed to a general audience, but you have actual knowledge that you collect personalinformation from children under 13.

OR

Your company runs an ad network or plug-in, for example, and you have actual knowledge that you collect personalinformation from users of a website or service directed to children under 13.

To determine if you’re covered by COPPA, look at how the Rule defines some key terms.

“Website or online service”COPPA defines this term broadly. In addition to standard websites, examples of others covered by the Rule include:

mobile apps that send or receive information online (like network-connected games, social networking apps, or appsthat deliver behaviorally-targeted ads),

internet-enabled gaming platforms,

plug-ins,

advertising networks,

internet-enabled location-based services,

voice-over internet protocol services,

connected toys or other Internet of Things devices.

“Directed to children under 13”The FTC looks at a variety of factors to see if a site or service is directed to children under 13, including the subject matter ofthe site or service, visual and audio content, the use of animated characters or other child-oriented activities and incentives,the age of models, the presence of child celebrities or celebrities who appeal to kids, ads on the site or service that aredirected to children, and other reliable evidence about the age of the actual or intended audience. If your website doesn’ttarget children as its primary audience, but is “directed to children under 13” based on those factors, you may choose to applyCOPPA protections only to users under age 13. If that’s what you decide to do, you must not collect personal information fromany users without first collecting age information. For users who say they are under age 13, don’t collect any personalinformation until you have obtained verifiable parental consent.

“Personal information”Oct 2017 183

Each of these is considered personal information under COPPA:

full name;

home or other physical address, including street name and city or town;

online contact information like an email address or other identifier that permits someone to contact a person directly —for example, an IM identifier, VoIP identifier, or video chat identifier;

screen name or user name where it functions as online contact information;

telephone number;

Social Security number;

a persistent identifier that can be used to recognize a user over time and across different sites, including a cookienumber, an IP address, a processor or device serial number, or a unique device identifier;

a photo, video, or audio file containing a child’s image or voice;

geolocation information sufficient to identify a street name and city or town; or

other information about the child or parent that is collected from the child and is combined with one of these identifiers.

“Collect”Under COPPA, you’re collecting information if you:

request, prompt, or encourage the submission of information, even if it’s optional;

let information be made publicly available (for example, with an open chat or posting function) unless you takereasonable measures to delete all or virtually all personal information before postings are public and delete allinformation from your records; or

passively track a child online.

If another company collects personal information through your child-directed site or service — through an ad network or plug-in, for example — you’re responsible for complying with COPPA. If you have actual knowledge that you’re collecting personalinformation directly from users of a child-directed site or service, you’re responsible for complying with COPPA, too.

STEP 2: POST A PRIVACY POLICY THAT COMPLIES WITH COPPA.Assuming you’re covered by COPPA, the next step is to post a privacy policy. It must clearly and comprehensively describehow personal information collected online from kids under 13 is handled. The notice must describe not only your practices, butalso the practices of any others collecting personal information on your site or service — for example, plug-ins or ad networks.

Include a link to your privacy policy on your homepage and anywhere you collect personal information from children. If youoperate a site or service directed to a general audience, but have a separate section for kids, post a link to your privacy policyon the homepage of the kids’ part of your site or service.

Make those links clear and prominent. Consider using a larger font or a different color type on a contrasting background. Afineprint link at the bottom of the page or a link that isn’t distinguishable from other links on your site won’t do the trick.

To comply with COPPA, your privacy policy should be clear and easy to read. Don’t add any unrelated or confusinginformation. Here’s what your policy must include:

A list of all operators collecting personal information. Name each third party operator, such as an advertisingnetwork or social network plug-in, that collects or maintains children’s personal information through your site or service.For each, include a name and contact information (address, telephone number, and email address). If more than one iscollecting information, it’s okay to give contact information for only one as long as that company will respond to allinquiries from parents about your site or service’s practices. Even so, you still have to list all third parties in your privacypolicy.

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A description of the personal information collected and how it’s used. Your policy must describe:

the types of personal information collected from children (for example, name, address, email address, hobbies,etc.);

how the personal information is collected — directly from the child or passively, say, through cookies;

how the personal information will be used (for example, for marketing to the child, notifying contest winners, orallowing the child to make information publicly available through a chat room); and

whether you disclose personal information collected from kids to third parties. If you do, your privacy policy must listthe types of businesses you disclose information to (for example, ad networks) and how they use the information.

A description of parental rights. Your privacy policy must tell parents:

that you won’t require a child to disclose more information than is reasonably necessary to participate in an activity;

that they can review their child’s personal information, direct you to delete it, and refuse to allow any furthercollection or use of the child’s information;

that they can agree to the collection and use of their child’s information, but still not allow disclosure to third partiesunless that’s part of the service (for example, social networking); and

the procedures to follow to exercise their rights.

STEP 3: NOTIFY PARENTS DIRECTLY ABOUT YOUR INFORMATION PRACTICESBEFORE COLLECTING PERSONAL INFORMATION FROM THEIR KIDS.COPPA requires that you give parents “direct notice” of your information practices before collecting information from their kids.In addition, if you make a material change to the practices parents previously agreed to, you have to send an updated directnotice.

The notice should be clear and easy to read. Don’t include any unrelated or confusing information. The notice must tellparents:

that you collected their online contact information for the purpose of getting their consent;

that you want to collect personal information from their child;

that their consent is required for the collection, use, and disclosure of the information;

the specific personal information you want to collect and how it might be disclosed to others;

a link to your online privacy policy;

how the parent can give their consent; and

that if the parent doesn’t consent within a reasonable time, you’ll delete the parent’s online contact information from yourrecords.

In certain circumstances, it’s okay under COPPA to collect a narrow class of personal information without getting parentalconsent. But you may still have to give parents direct notice of your activities. (See the chart at the end for a list of thoselimited exceptions.)

STEP 4: GET PARENTS’ VERIFIABLE CONSENT BEFORE COLLECTING PERSONALINFORMATION FROM THEIR KIDS.Before collecting, using or disclosing personal information from a child, you must get their parent’s verifiable consent. How doyou get that? COPPA leaves it up to you, but it’s important to choose a method reasonably designed in light of availabletechnology to ensure that the person giving the consent is the child’s parent. If you have actual knowledge that you’recollecting personal information from a site or service that is directed to children, you may get consent directly or through thechild-directed site or service.

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Acceptable methods include having the parent:

sign a consent form and send it back to you via fax, mail, or electronic scan;

use a credit card, debit card, or other online payment system that provides notification of each separate transaction tothe account holder;

call a toll-free number staffed by trained personnel;

connect to trained personnel via a video conference;

provide a copy of a form of government issued ID that you check against a database, as long as you delete theidentification from your records when you finish the verification process;

answer a series of knowledge-based challenge questions that would be difficult for someone other than the parent toanswer; or

verify a picture of a driver's license of other photo ID submitted by the parent and then comparing that photo to a secondphoto submitted by the parent, using facial recognition technology.

If you will use a child’s personal information only for internal purposes and won’t disclose it, you may use a method known as“email plus.” Under that method, send an email to the parent and have them respond with their consent. Then you must send aconfirmation to the parent via email, letter, or phone call. If you use email plus, you must let the parent know they can revoketheir consent anytime.

You must give parents the option of allowing the collection and use of their child's personal information without agreeing todisclosing that information to third parties. If you make changes to the collection, use, or disclosure practices the parentalready agreed to, you must send the parent a new notice and get their consent.

Check the chart for the narrow exceptions to the general rule that you must get parental consent before collecting personalinformation from kids. Even if you fall within an exception to the consent requirement, you still may have specific noticerequirements.

STEP 5: HONOR PARENTS’ ONGOING RIGHTS WITH RESPECT TO PERSONALINFORMATION COLLECTED FROM THEIR KIDS.Even if parents have agreed that you may collect information from their kids, parents have ongoing rights — and you havecontinuing obligations.

If a parent asks, you must:

give them a way to review the personal information collected from their child;

give them a way to revoke their consent and refuse the further use or collection of personal information from their child;and

delete their child’s personal information.

Any time you’re communicating with a parent about personal information already collected from their child, take reasonablesteps to ensure you’re dealing with the child’s parent. At the same time, make sure the method you use to give parents accessto information collected from their kids isn’t unduly burdensome on the parent. Under COPPA, it may be okay to terminate aservice to a child if the parent revokes consent, but only if the information at issue is reasonably necessary for the child’sparticipation in that activity.

STEP 6: IMPLEMENT REASONABLE PROCEDURES TO PROTECT THE SECURITYOF KIDS’ PERSONAL INFORMATION.COPPA requires you to establish and maintain reasonable procedures to protect the confidentiality, security, and integrity ofpersonal information collected from children. Minimize what you collect in the first place. Take reasonable steps to release

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personal information only to service providers and third parties capable of maintaining its confidentiality, security, and integrity.Get assurances they’ll live up to those responsibilities. Hold on to personal information only as long as is reasonablynecessary for the purpose for which it was collected. Securely dispose of it once you no longer have a legitimate reason forretaining it.

Looking for more about the Children’s Online Privacy Protection Rule? Visit the Children’s Privacy page of the FTC’s BusinessCenter. For additional advice, read Complying with COPPA: Frequently Asked Questions. Visit consumer.ftc.gov for generalinformation about protecting kids’ privacy online. Email us at COPPAhotline@ftc.gov if you have other questions.

CHART: LIMITED EXCEPTIONS TO COPPA’S VERIFIABLE PARENTAL CONSENTREQUIREMENTIn general, you must get a parent’s verifiable consent before collecting personal information from their child. But there aresome limited exceptions to that requirement that allow you to collect information without parental consent. Keep in mind thatthe kind of information you may collect under each exception is narrow. You can’t collect anything more. Also, if you collectinformation under one of these exceptions, you can’t use it or disclose it for any other purpose.

REASON YOU MAY COLLECTINFORMATION WITHOUTPARENTAL CONSENT

THE KIND OFINFORMATIONYOU MAYCOLLECT

OTHER LIMITSON HOW YOUMAY USE THEINFORMATION

IF YOU COLLECTINFORMATION UNDER THISEXCEPTION, WHAT YOUMUST TELL PARENTS INYOUR DIRECT NOTICE

To get verifiable parentalconsent

child’s andparent’s nameand onlinecontactinformation

You must deletetheir contactinformation if youdon’t get consentwithin areasonable time.

You must:

tell parents youcollected their onlinecontact information soyou can obtain theirconsent;

tell them their consentis required for thecollection, use ordisclosure of personalinformation collectedfrom the child, and thatyou won’t collect, useor disclose anypersonal informationfrom the child withoutthe parent's consent;

describe the additionalitems of personalinformation you intendto collect from the childand other ways for thechild to disclosepersonal information ifthe parent providesconsent;

hyperlink to your

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privacy policy;

describe the waysparents can provideverifiable consent forthe collection, use ordisclosure of personalinformation collectedfrom the child; and

tell parents that if theydon’t provide consentwithin a reasonabletime, you will deletetheir online contactinformation from yourrecords.

To give voluntary notice to aparent about their child’sparticipation on a site orservice that doesn’t collectpersonal information

parent’s onlinecontactinformation

You must:

tell parents youcollected their onlinecontact information tolet them know abouttheir child’s activities ona site or service thatdoesn’t collect personalinformation;

tell them their onlinecontact informationwon’t be used for anyother purpose;

tell them they mayrefuse their child’sparticipation andrequire that you deletetheir contactinformation; and

hyperlink to yourprivacy policy.

To respond directly to achild’s specific one-timerequest (for example, if thechild wants to enter acontest)

child’s onlinecontactinformation

You can’t use theinformation tocontact the childagain and youmust delete it afteryou respond to therequest.

No direct notice is required.

You must:

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To respond directly morethan once to a child’s specificrequest (for example, if thechild wants to receive anewsletter)

child’s andparent’s onlinecontactinformation

You can’t combinethis informationwith any otherinformationcollected from thechild.

tell parents youcollected their onlinecontact information tolet them know theirchild has asked formultiple onlinecommunications;

tell parents youcollected their child’sonline contactinformation to providethe multiplecommunications theyasked for;

tell parents the onlinecontact informationwon’t be used for anyother purpose andwon’t be disclosed orcombined with otherinformation;

tell parents that if theydon’t opt out, you mayuse the child’s onlinecontact information forthat purpose; and

hyperlink to yourprivacy policy.

To protect a child’s safety

child’s andparent’s nameand onlinecontactinformation

You must:

tell parents youcollected the namesand contact informationto protect a child’ssafety;

tell parents theinformation won’t beused or disclosed forany other purpose;

tell parents they mayrefuse to permit the useof the contactinformation and requireyou to delete it; and

hyperlink to yourprivacy policy

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To protect the security orintegrity of your site orservice, to take precautionsagainst liability, to respond tojudicial process, or — aspermitted by law — to provideinformation to lawenforcement

child’s nameand onlinecontactinformation

No direct notice is required.

To provide support forinternal operations of yoursite or service.

This includes:

maintaining oranalyzing thefunctioning of the site,

performing networkcommunications,

authenticating users ofthe site orpersonalizing content,

serving contextual adsor frequency capping,

protecting the securityor integrity of the useror the site,

legal or regulatorycompliance, or

fulfilling a child’srequest under the one-time contact or multiplecontact exceptions.

persistentidentifier

You can’t use theinformation tocontact a specificperson, includingthrough behavioraladvertising, toamass a profile ona specific person,or for any otherpurpose.

You can’t use thisexception if youcollect personalinformation otherthan a persistentidentifier.

No direct notice is required.

If you have actual knowledgethat a person’s informationwas collected through achild-directed site, but theirprevious registrationindicates the person is 13 orover

This exception applies only if:

you collect only apersistent identifier andno other personalinformation;

the person affirmativelyinteracts with your site

persistentidentifier

You can’t use thisexception if youcollect informationother than apersistentidentifier.

No direct notice is required.

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or service to trigger thecollection; and

you have alreadyconducted an age-screen of the personindicating he or she is13 or over.

FOR MORE INFORMATIONThe FTC works for the consumer to prevent fraudulent, deceptive, and unfair practices in the marketplace and to provideinformation to businesses to help them comply with the law. To file a complaint, visit ftc.gov or call toll-free, 1-877-FTC-HELP(1-877-382-4357); TTY: 1-866-653-4261. Watch a video, How to File a Complaint, to learn more. The FTC enters consumercomplaints into the Consumer Sentinel Network, a secure online database and investigative tool used by hundreds of civil andcriminal law enforcement agencies in the U.S. and abroad.

YOUR OPPORTUNITY TO COMMENTThe National Small Business Ombudsman and 10 Regional Fairness Boards collect comments from small businesses aboutfederal compliance and enforcement activities. Each year, the Ombudsman evaluates the conduct of these activities and rateseach agency’s responsiveness to small businesses. Small businesses can comment to the Ombudsman without fear ofreprisal. To comment, call toll-free 1-888-REGFAIR (1-888-734-3247) or go to www.sba.gov/ombudsman.

June 2017

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Privacy PolicyOct 2017 191

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July 10, 2017

Executive Summary of the Arbitration Agreements Rule The Consumer Financial Protection Bureau (Bureau) has issued a final rule to regulate pre-dispute arbitration agreements in contracts for specified consumer financial products and services (Arbitration Agreements Rule or Rule). The Rule is effective on the 60th day after publication in the Federal Register. However, as explained below, it only applies to pre-dispute arbitration agreements for covered products or services entered into on or after the 241st day after publication in the Federal Register. The Rule refers to this date as the “compliance date.” Although this executive summary provides a high-level overview of the Arbitration Agreements Rule, it is not a substitute for reviewing the Rule. The Rule is the definitive source regarding its requirements.

Providers

The Arbitration Agreements Rule applies to “providers” of covered consumer financial products and services. The Rule defines the term “provider” to mean either of the following:

1. A person1 that engages in an activity that is a covered consumer financial product or service to the extent that the person is not specifically excluded from coverage under the Arbitration Agreements Rule; or

2. An affiliate2 of such a person when the affiliate is acting as that person’s service provider consistent with 12 U.S.C. 5481(6)(B).

1 For this purpose, a “person” includes an individual, partnership, company, corporation, association, trust, estate, cooperative organization, or other entity.

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The following3 are excluded from coverage and are not “providers” under the Arbitration Agreements Rule:

1. A person regulated by the Securities and Exchange Commission.

2. A person to the extent regulated by a state securities commission as either a broker dealer or an investment adviser.

3. A person regulated by the Commodity Futures Trading Commission or a person with respect to any account, contract, agreement, or transaction to the extent subject to the jurisdiction of the Commodity Futures Trading Commission.

4. A federal agency.

5. A state (including the District of Columbia and territories and possessions of the United States), federally recognized Indian tribe, or other person to the extent the person has federal sovereign immunity from private suit.

6. A person to the extent the person’s activities are not subject to the Bureau’s rulemaking authority. These persons may include auto dealers, attorneys, and other persons.

7. Merchants, retailers, or other sellers of nonfinancial goods or services to the extent they:

a. Offer or provide an extension of consumer credit and are either not subject to the Bureau’s rulemaking authority or would only be subject to the Bureau’s rulemaking authority under a statutory provision relating to certain factoring activity; or

b. Purchase or acquire such an extension of consumer credit.

8. An employer to the extent that the employer is providing a covered consumer financial product or service to its employees as an employee benefit.

9. A person to the extent that the person is engaged in offering or providing a product or service that does not meet the numeric threshold set forth in the Rule. A product does not meet this threshold if the person and any of its affiliates collectively provide the

2 An affiliate for this purpose is any person that controls, or is controlled by, or is under common control with another person as defined in 12 U.S.C. 5481(1).

3 Generally, these exclusions refer to terms in particular statutes. For example the terms “person regulated by the [Securities and Exchange] Commission” and “person regulated by the [Commodity Futures Trading Commission]” are defined in 12 U.S.C. 5481. For more information on the precise scope of each exclusion, see the Rule.

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product to 25 or fewer consumers in the current calendar year and collectively provided the product to 25 or fewer consumers in the preceding calendar year.

A person is not covered by the Rule to the extent that any exclusion above applies. Similarly, to the extent that an affiliate is a service provider to a person to whom an exclusion applies, the affiliated service provider is not covered under the second prong of the definition of provider. However, the affiliated service provider may be covered under the first prong of the definition of provider.

Covered Consumer Financial Products and Services

A provider is only required to comply with the Rule for products and services that are covered consumer financial products and services under the Rule. For example, a provider under the first prong of the definition of “provider” must comply with the Rule only for covered consumer financial products and services. A provider under the second prong of the definition of “provider” must comply with the Rule only when it is acting as a service provider with regard to a covered consumer financial product or service. In order for a product or service to be a covered consumer financial product or service under the Rule, it must be both of the following:

1. A consumer financial product or service as defined by 12 U.S.C. 5481(5). Generally, this prong of the definition requires that a financial product or service be offered or provided to consumers primarily for personal, family, or household purposes or that it be offered or provided in connection with another financial product or service that is offered or provided to consumers primarily for personal, family, or household purposes.

2. Included in the Rule’s list of covered consumer financial products and services, which the Rule often defines by reference to particular statutes or regulations. Generally, the list includes extending consumer credit, participating in consumer credit decisions, engaging in certain creditor referral or selection activity for consumer credit, acquiring or selling consumer credit, servicing an extension of consumer credit or collecting a consumer debt arising from a product or service covered by the Rule, extending or brokering certain automobile leases, providing consumers with information derived from their consumer credit file, engaging in credit repair or debt management activities, providing consumer asset accounts including deposit accounts and prepaid accounts, providing remittance transfers, accepting financial data for the purpose of initiating certain payments or card charges, and providing check cashing, check guaranty, or check collection services.

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Pre-Dispute Arbitration Agreements

The Arbitration Agreements Rule contains requirements that apply with regard to a provider’s use of a “pre-dispute arbitration agreement” that is entered into on or after the compliance date. The Rule defines “pre-dispute arbitration agreement” to mean an agreement that is:

1. Between a covered person4 and a consumer;5 and

2. That provides for arbitration of any future dispute concerning a covered consumer financial product or service.

Under the Rule’s definition, a pre-dispute arbitration agreement may be between a consumer and a covered person, who may or may not be a provider under the Rule. Although the Rule’s requirements do not apply to a covered person that is not also a provider, the requirements may apply to a provider who later relies on or enters into a pre-dispute arbitration agreement that was initially between a consumer and a covered person, other than the provider. The form or structure of the agreement is not determinative. An agreement can be a pre-dispute arbitration agreement under the Rule regardless of whether it is a standalone agreement, an agreement or provision that is incorporated into, annexed to, or otherwise made a part of a larger contract, is in some other form, or has some other structure.

Prohibition on Relying on Pre-dispute Arbitration Agreements

The Arbitration Agreements Rule prohibits a provider from relying on a pre-dispute arbitration agreement with respect to any aspect of a class action that concerns any covered consumer financial product or service. This prohibition only applies to pre-dispute arbitration agreements entered into by a provider or a covered person on or after the compliance date. As noted above, this prohibition may apply to a provider with respect to a pre-dispute arbitration agreement initially entered into between a consumer and a covered person other

4 For this purpose, a “covered person” is any person that engages in offering or providing a consumer financial product or service, and any affiliate of a covered person if such affiliate acts as a service provider to the covered person as defined in 12 U.S.C. 5481(6). Persons excluded from the Bureau’s rulemaking authority or otherwise not included within or excluded from the Arbitration Agreements Rule’s definition of “provider” may still meet the definition of “covered person.”

5 The Arbitration Agreements Rule defines “consumer” to mean an individual or an individual’s agent, trustee, or representative.

Oct 2017 195

than the provider. For example, if an automobile dealer includes a pre-dispute arbitration agreement in a consumer motor vehicle installment sales contract, a provider (such as an indirect automobile lender or debt collector) is prohibited from relying on such a pre-dispute arbitration agreement in a dispute concerning the installment sales contract.

Provisions Required in Pre-dispute Arbitration Agreements

The Arbitration Agreements Rule requires that, upon entering into a pre-dispute arbitration agreement on or after the compliance date, a provider must ensure that certain language set forth in the Rule is included in the agreement. Generally, the required language informs consumers that the agreement may not be used to block class actions. The Rule allows a provider to use an alternative method of providing required language for a pre-dispute arbitration agreement that existed between other parties prior to the provider entering into the agreement. If such an agreement does not already contain the language required by the Rule, the provider must amend the agreement to include language required by the Rule or provide a written notice to each consumer subject to the agreement within 60 days of entering into the pre-dispute arbitration agreement. In certain circumstances, the Arbitration Agreements Rule permits a provider to use different or additional language in a pre-dispute arbitration agreement. Additionally, if certain conditions are met, the requirement to add certain language does not apply to a pre-dispute arbitration agreement for a general-purpose reloadable prepaid card if the agreement was packaged with the card prior to the compliance date. The Arbitration Agreements Rule includes the following examples of when a provider enters into a pre-dispute arbitration agreement after the compliance date:

1. The provider provides to a consumer a new covered consumer financial product or service that is subject to a pre-existing agreement to arbitrate future disputes between the parties, and the provider is a party to that arbitration agreement.

2. The provider acquires or purchases a covered consumer financial product or service that

is subject to a pre-dispute arbitration agreement and becomes a party to that pre-dispute arbitration agreement.

3. The provider adds a pre-dispute arbitration agreement to an existing product or service.

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Submission of Records to the Bureau

The Arbitration Agreements Rule requires a provider to submit to the Bureau certain arbitration-related records concerning a covered consumer financial product or service. The requirement to submit these records only applies to:

1. Specified records filed in any arbitration or court proceedings in which a party relies on a pre-dispute arbitration agreement entered into on or after the compliance date.

2. Communications the provider receives from an arbitrator or arbitral administrator pertaining to a determination that a pre-dispute arbitration agreement entered into on or after the compliance date does not comply with an arbitral administrator’s due process or fairness standards.

3. Communications the provider receives from an arbitrator or arbitral administrator regarding a dismissal of or refusal to administer a claim due to the provider’s failure to pay required filing or administrative fees.

Generally, if the provider is required to submit a record to the Bureau, it must submit a copy of the record within 60 days of the date that the record was filed with the arbitrator, arbitral administrator, or court. The provider must submit the record in the manner and form specified by the Bureau and must redact certain personally identifiable information from the record prior to submitting it. The Bureau will post the redacted records it obtains from providers (subject to additional redactions) on a publicly available website that the Bureau will establish and maintain by July 1, 2019. The Bureau will publish details of how providers should comply with these requirements. The Bureau expects that such instructions will be published in the Federal Register, on the Bureau’s website, and in a compliance guide the Bureau will make available.

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Spring 2017 rulemaking agendaBy Kelly Cochran – JUL 20, 2017

An important part of the CFPB’s statutory mandate from the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) is to make rules governing consumer finance markets more effective and to create new rules when warranted. Under the Regulatory Flexibility Act, federal agencies must publish regulatory agendas twice a year. As an independent regulatory agency, we have been voluntarily participating in the Unified Agenda, which is led by the Office of Management and Budget (OMB). OMB recently posted online our updated agenda submitted this spring. Portions of that agenda will also be published in the Federal Register.

The Unified Agenda includes rulemaking actions in pre-rule, proposed rule, final rule, long-term, and completed stages. Our rulemaking work is focused on achieving the objectives established in the Dodd-Frank Act, which are:

◾ Providing consumers with timely and understandable information to make responsible decisions about financial transactions

◾ Protecting consumers from unfair, deceptive, and abusive acts and practices and from discrimination

◾ Addressing outdated, unnecessary, or unduly burdensome regulations

◾ Enforcing federal consumer financial law consistently in order to promote fair competition, without regard to whether providers of financial services are banks, thrifts, credit unions, or other kinds of institutions

◾ Promoting the transparent and efficient operation of markets for consumer financial services to facilitate access and innovation

Our regulatory work in pursuit of those objectives can be grouped into three main categories: 

1. Implementation of directives from Congress

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2. Other efforts to address consumer harms where markets do not operate efficiently and fairly, to promote fair competition among financial services providers, and to improve consumer understanding

3. Projects to modernize, streamline, and clarify consumer financial regulations

Here’s a brief summary of various Bureau initiatives.

Implementing statutory directives

Much of our rulemaking work is focused on carrying out requirements that Congress has established by law. In this work, we strive to achieve the consumer protection objectives of the statutes, while minimizing regulatory burden on financial services providers. We also work to facilitate a smooth implementation process for both industry and consumers. 

Mortgage rules

We are continuing efforts to implement critical consumer protections under the Dodd-Frank Act to guard against the kind of practices in the mortgage market that led to the nation’s most significant financial crisis in several decades. Since 2013, we have issued regulations as directed by the Dodd-Frank Act to implement protections for mortgage originations and servicing, integrate various federal mortgage disclosures into streamlined forms, and amend mortgage reporting requirements under the Home Mortgage Disclosure Act (HMDA). We are now working to support the implementation process for those rules.

For example, we have recently finalized a follow-up rulemaking to make small clarifications and provide further regulatory guidance concerning our "Know Before You Owe" mortgage rule, which combines several federal disclosures that consumers receive in connection with applying for and closing on a mortgage loan under the Truth in Lending Act and the Real Estate Settlement Procedures Act. The Bureau also issued a concurrent proposal to seek public comment on one additional issue. The project to integrate and streamline the disclosures was mandated under the Dodd-Frank Act and took effect in October 2015. The rule is the cornerstone of our broader “Know Before You Owe” mortgage initiative. 

We are also working to support implementation of new rules concerning HMDA, which produces mortgage data that can be used to monitor the market for fair lending and a range of other purposes. We are completing two rulemakings to make small clarifications to facilitate compliance with the HMDA rules, which will largely take effect in 2018, as well as provisions of the Equal Credit Opportunity Act

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that also concern data collection and reporting. We also recently released a proposal to increase the threshold for reporting open-end lines of credit for 2018 and 2019 to allow time for the Bureau to evaluate whether a change in the permanent threshold is warranted. We are also working with industry to streamline and modernize the HMDA data reporting processes in conjunction with implementation of the regulatory changes. 

We also considering concerns raised by industry participants regarding a few substantive aspects of the mortgage servicing rule that we used in August 2016. These aspects may be posing particular complexities for implementation that were not anticipated in the course of the original rulemaking. We expect to issue a proposal to make one or more substantive changes to the rule in response to these concerns this fall. We are also issued a small final rule this summer making technical corrections to the mortgage servicing rule.

Supporting fair lending to small businesses

We are also working to implement section 1071 of the Dodd-Frank Act, which amends the Equal Credit Opportunity Act to require financial institutions to compile, maintain, and report information concerning credit applications made by women-owned, minority-owned, and small businesses. This rulemaking could provide critical information about how these businesses—which are critical engines for economic growth—access credit. We recently held a public hearing on this subject and released a white paper summarizing preliminary research on the small business lending market. We have also issued a Request for Information seeking public comment on, among other things, credit products offered in this market, what data are currently collected and used by lenders, the potential complexity and cost of small business data collection, and potential privacy issues. The information received will help us determine how to implement the rule efficiently while minimizing burdens on lenders.

Efforts to address consumer harms, promote fair competition, and improve consumer understanding

We are considering rules to address consumer harms where markets do not operate efficiently and fairly, making it difficult for consumers to make informed decisions and otherwise protect their own interests. In addition, we are focused on the Dodd-Frank Act objective to promote fair competition among financial services providers, which itself has substantial benefits for consumers. 

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Arbitration

For example, we recently released a final rule concerning the use of agreements between financial services providers and consumers providing for arbitration of any future disputes. The rulemaking addresses concerns that these “mandatory pre-dispute arbitration agreements” are being used to prevent consumers from joining together to obtain relief for legal violations concerning consumer financial products and services. Financial services providers who use such agreements therefore have far weaker incentives to obey the law than providers who do not. The rulemaking follows on our groundbreaking research, as mandated by Congress under the Dodd-Frank Act. We had received more than 110,000 comments in response to our May 2016 Notice of Proposed Rulemaking.

Payday, auto title, and similar lending products

The Bureau released a Notice of Proposed Rulemaking in June 2016 building on several years of research documenting consumer harms from practices related to payday loans, auto title loans, and other similar credit products. In particular, we are concerned that product structure, lack of underwriting, and certain other lender practices are interfering with consumer decision making with regard to such products and trapping large numbers of consumers in extended cycles of debt that they do not expect. We are also concerned that certain lenders’ payment collection practices are causing substantial harm to consumers, including substantial unexpected fees and heightened risk of losing their checking accounts. We continue to believe that the concerns articulated in the NPRM are substantial, and are carefully considering more than one million comments received in response to the proposal with respect to how best to address those concerns in a manner consistent with our objectives under the Dodd-Frank Act. 

Debt collection

We are also engaged in rulemaking activities regarding the debt collection market, which continues to be the single largest source of complaints to the federal government of any industry. We are concerned that because consumers cannot choose their debt collectors or “vote with their feet,” they have less ability to protect themselves from harmful practices. In January 2017, we published the results of a survey of consumers about their experiences with debt collection. We have also received encouragement from industry to engage in rulemaking to make the standards clear and address issues of concern under the Fair Debt Collection Practices Act (FDCPA), such as the application of the FDCPA to modern communication technologies under the 40-year-old statute. We released an outline of proposals  under consideration in July 2016 concerning practices by

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companies that are “debt collectors” under the FDCPA, in advance of convening a panel under the Small Business Regulatory Enforcement Fairness Act (SBREFA) in conjunction with the Office of Management and Budget and the Small Business Administration’s Chief Counsel for Advocacy to consult with representatives of small businesses that might be affected by the rulemaking. Building on feedback received through the SBREFA panel, we have decided to issue a proposed rule later in 2017 concerning debt collectors’ communications practices and consumer disclosures. We intend to follow up separately at a later time about concerns regarding information flows between creditors and FDCPA collectors and about potential rules to govern creditors that collect their own debts.

Overdraft programs on checking accounts

We are also engaged in policy analysis and further research initiatives in preparation for a potential rulemaking regarding overdraft programs on checking accounts. After several years of research, we believe that there are consumer protection concerns with regard to these programs. Consumers do not shop based on overdraft fee amounts and policies, and the market for overdraft services does not appear to be competitive. Under the current regulatory regime consumers can opt in to permit their financial institution to charge fees for overdrafts that occur at ATMs and in point-of-sale debit transactions, but the complexity of the system may complicate consumer decision making. Despite widespread use of disclosure forms, the regime produces substantially different opt-in rates across different depository institutions, and our supervisory and enforcement work indicates that some institutions are aggressively steering consumers to opt in. We are engaged in consumer testing of revised opt-in forms and considering whether other regulatory changes may be warranted to enhance consumer decision making.

Larger participant and non-depository lender registration

In addition, we are continuing rulemaking activities that will ensure meaningful supervision of non-bank financial services providers in order to create a more level playing field for depository and non-depository institutions. Under section 1024 of the Dodd-Frank Act, the CFPB is authorized to supervise “larger participants” of markets for various consumer financial products and services as defined by Bureau rule. We have defined the threshold for larger participants in several markets in past rulemakings, and are now working to develop a proposed rule that would define non-bank “larger participants” in the market for personal loans, including consumer installment loans and vehicle title loans. We are also considering whether rules to require registration of these or other non-depository lenders would facilitate supervision, as has been suggested to us by both consumer advocates and industry groups.

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Prepaid financial products

Our recent rulemaking concerning prepaid financial products also advanced fairness and consistency objectives by creating a uniform disclosure regime and providing basic protections similar to those enjoyed by users of debit cards and credit cards. We are in the process of working with industry to facilitate implementation of this rule, and recently extended the effective date by six months in order to ensure a smoother transition for consumers and industry. We also proposed amendments to address certain targeted aspects of the rule. The proposal will address matters that prepaid providers have highlighted as having particular complexities for implementation or potential negative consequences for consumers that were not anticipated or fully explained by commenters in the course of the original rulemaking.

Modernizing, streamlining, and clarifying consumer financial regulations

Our third group of activities concerns modernizing, streamlining, and clarifying consumer financial regulations and other activities to reduce unwarranted regulatory burdens as directed by the Dodd-Frank Act. Since most of the federal consumer financial laws that we administer were enacted in the 1960s and 1970s, there is often substantial demand for these activities from both industry and consumer advocates alike.

Assessments

The Dodd-Frank Act directs the Bureau to assess the effectiveness of significant rules five years after they are implemented, including seeking public comment. We have recently published requests for comment on our plans to assess the effectiveness of mortgage servicing rules, rules implementing portions of the Dodd-Frank Act requiring mortgage lenders to assess consumers’ ability to repay, and rules implementing provisions of the Dodd-Frank Act regulating consumer remittance transfers of money to international recipients.

Regulation reviews

We also expect later this year to begin the first in a series of reviews of existing regulations that we inherited from other agencies through the transfer of authorities under the Dodd-Frank Act. We had previously sought feedback on the inherited rules as a whole, and identified and executed several burden-reduction projects from that undertaking. We have largely completed those initial projects and believe

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that the next logical step is to review individual regulations—or portions of large regulations—in more detail to identify opportunities to clarify ambiguities, address developments in the marketplace, or modernize or streamline provisions. We note that other federal financial services regulators have engaged in these types of reviews over time, and believe that such an initiative would be a natural complement to our work to facilitate implementation of new regulations.

We have also recently formed an internal task force to coordinate and deepen the agency’s focus on concerns about regulatory burdens and projects to identify and reduce unwarranted regulatory burdens consistent with our objectives under section 1021 of the Dodd-Frank Act. 

Credit CARD Act

We are considering rules to modernize our database of credit card agreements to reduce burden on issuers that submit credit card agreements to us and make the database more useful for consumers and the general public. The Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act) requires credit card issuers to post their credit card agreements to their Internet site, and submit those agreements to the Bureau to be posted on an Internet site that we maintain. We believe an improved submission process and database would be more efficient for both industry and the Bureau and would allow consumers and the general public to access and analyze information more easily.

Other initiatives

We also publish a portion of the Unified Agenda focusing on long-term actions  to reflect potential initiatives beyond those identified above. These include potential rulemakings to address consumer issues in the markets for student loan servicing and credit reporting. We have been monitoring both markets for trends and developments through our supervisory, enforcement, and research efforts.

We are continuing to conduct outreach and research to assess issues in various other markets for consumer financial products and services beyond those discussed above. As this work continues, we will evaluate possible policy responses, including possible rulemaking actions, taking into account the critical need for and effectiveness of various policy tools. We will update our regulatory agenda in fall 2018 to reflect the results of this further prioritization and planning. 

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About Us Related Resources Disclosure Accessibility Privacy Policy Contact Us

Agency Rule List - Update 2017

Consumer Financial Protection Bureau

Agency Agenda Stage ofRulemaking Title RIN

CFPB Prerule Stage Business Lending Data (Regulation B) 3170-AA09

CFPB Prerule Stage Overdraft Services 3170-AA42

CFPB Prerule Stage Submission of Credit Card Agreements Under the Truth in Lending Act (Regulation Z) 3170-AA70

CFPB Prerule Stage Review of Inherited Regulations 3170-AA73

CFPB Proposed Rule Stage Supervision of Larger Participants in Markets for Personal Loans 3170-AA07

CFPB Proposed Rule Stage Payday, Vehicle Title, and Certain High-Cost Installment Loans 3170-AA40

CFPB Proposed Rule Stage Debt Collection Rule 3170-AA41

CFPB Proposed Rule Stage Amendments to FIRREA Concerning Appraisals (Automated Valuation Models) 3170-AA57

CFPB Proposed Rule Stage Technical Corrections and Clarifying Amendments to Home Mortgage Disclosure Act (Regulation C) 3170-AA64

CFPB Proposed Rule StageReconciling Equal Credit Opportunity Act (Regulation B) and Home Mortgage Disclosure Act(Regulation C) Ethnicity and Race Information Collection

3170-AA65

CFPB Proposed Rule StageAmendment to the Federal Mortgage Disclosure Requirements Under the Truth in Lending Act(Regulation Z)

3170-AA71

CFPB Proposed Rule StageAmendments to Rules Concerning Prepaid Accounts Under the Electronic Fund Transfer Act(Regulation E) and the Truth in Lending Act (Regulation Z)

3170-AA72

CFPB Proposed Rule StageAmendments to the 2016 Amendments to the 2013 Mortgage Servicing Rules Under the Real EstateSettlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z)

3170-AA75

CFPB Final Rule Stage The Expedited Funds Availability Act (Regulation CC) 3170-AA31

CFPB Final Rule Stage Arbitration 3170-AA51

CFPB Final Rule Stage Gramm-Leach-Bliley Act (GLBA) (Regulation P) 3170-AA60

CFPB Final Rule StageAmendments to Federal Mortgage Disclosure Requirements Under the Truth in Lending Act(Regulation Z)

3170-AA61

CFPB Final Rule Stage Amendments Relating to Disclosure of Records and Information 3170-AA63

CFPB Final Rule StageTechnical Corrections to the 2016 Amendments to the 2013 Mortgage Servicing Rules Under the RealEstate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z)

3170-AA74

Search: Agenda Reg Review ICR

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Misc 5 Prior to enactment of the PATH Act, the due dates for filing forms in the Form W-2 series, Form W-3, and Form 1099-MISC on paper were either February 28 or the last day of February of the calendar year following the calendar year for which the information was being reported. See § 1.6041-2(a)(3)(ii) (Form W-2 not subject to FICA); § 31.6071(a)-1(a)(3)(i) (Form W-2 subject to FICA); and § 1.6041-6 (Form 1099-MISC). The due date for filing these information returns electronically was March 31 of the calendar year following the calendar year for which the information was being reported. See section 6071(b) prior to amendment by the PATH Act. Section 201(a) and (c) of the PATH Act amended section 6071(b) and added new section 6071(c) to change the due date for information returns in the Form W-2 series, Form W-3, and “any returns or statements required by the Secretary to report nonemployee compensation.” Nonemployee compensation is currently reportable in box 7 of Form 1099-MISC. The amendments are effective for information returns for calendar years beginning after 2015. Under new section 6071(c), the new due date for returns in the Form W-2 series, Form W-3, and Forms 1099-MISC that report nonemployee compensation is January 31 of the calendar year following the calendar year for which the information is being reported, regardless of whether the returns are filed on paper or electronically. The due date for information returns on Forms 1099-MISC that do not report nonemployee compensation remains unchanged.

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Submit a regulatory inquiry The Bureau’s Office of Regulations offers financial institutions, service providers, and others informal staff guidance on specific questions about the Bureau’s regulations. The Bureau also makes available on its website extensive written implementation and guidance materials (https://www.consumerfinance.gov/policy-compliance/guidance/implementation-guidance/), which answer most common questions. Please consult those materials before submitting a question using this form.

You can expect to hear back from us in 10-15 business days. If we need more time to answer your question or cannot answer your question, we will tell you. Response times and formats vary depending on the current volume of questions, the amount of time needed to research your question, and staff availability.

Please understand that the responses we provide are not official interpretations of the Bureau and are not a substitute for formal legal counsel or other compliance advice. For example, we cannot moderate disputes between parties, provide guidance on matters that are under examination or investigation by the Bureau or another state or federal agency, or answer questions about specific business plans. We also cannot provide guidance on state law or federal law that is not under the Bureau’s authority. Comments on pending rulemakings should be submitted to the public docket (https://www.regulations.gov/). Information on upcoming rulemakings is available in the unified agenda(https://www.consumerfinance.gov/policy-compliance/rulemaking/regulatory-agenda/).

Note: If you are a consumer, you may submit a complaint(https://www.consumerfinance.gov/complaint/) online or call 855-411-2372(tel:855-411-2372). Whistleblowers (https://www.consumerfinance.gov/policy-compliance/enforcement/), such as a current or former employee of a company that may have violated federal consumer financial laws or industry insider who knows about such a company, can call 855-695-7974 (tel:855-695-7974) or email whistleblower@consumerfinance.gov (mailto:whistleblower@consumerfinance.gov).

What regulation is your question about?

If you have questions pertaining to multiple statutes or regulations please submit them separately.

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Enter your specific question in the box below.

Regulation Select a statute or regulation that your question involves.

Select a regulation

Regulation section (optional)

Indicate the specific regulation sections (e.g., 12 CFR 1026.36(d)) you are asking about. View the CFPB’s regulations(https://www.consumerfinance.gov/policy-compliance/rulemaking/final-rules/code-federal-regulations/).

12 CFR 1026.36(d)

Question

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Enter your contact information below.

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Company name

Company city & state

First name

Last name

Email address

Validate email address

Phone number

123-456-7890

Alternate phone number (optional)

987-654-3210

Office hours & time zone

8am-5pm ET

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CHICAGO REGION

Quarterly Newsletter

Letter from the Regional Director

VOLUME 5, Issue 2

June 30, 2017

In This Issue:

Letter from the

Regional Director

Bank Office

Structure Changes

New Consumer

Compliance Rating

System

New Resource for

Community Banks:

Affordable

Mortgage Lending

Guide, Part III:

Federal Home

Loan Banks

Upcoming Chicago

Region Community

Affair Events

With this issue of the quarterly newsletter, I want to highlight the FDIC’s efforts to encourage banks and schools to work to-gether to improve the financial skills and experiences of

young people. Most recently, the agency released a report on its Youth Savings Pi-lot. The report, Linking Youth Savings with Financial Education: Lessons from the FDIC Pilot, revealed promising approaches to combining financial education with the opening of safe, low-cost savings accounts that your institution may find useful in structuring accounts for school-aged chil-dren. Within the report, a range of models are discussed that offer banks flexibility to adapt to varying opportunities to promote youth savings. Further, the FDIC also re-cently launched its Youth Banking Network to support insured financial institutions with new and existing school-based savings programs.

If you have not already done so, I encour-age you to review the report or learn more about joining the Youth Banking Network by visiting the new FDIC Youth Banking Resource Center at www.fdic.gov/youthsavings. Additional details on these initiatives were highlighted in Financial In-stitution Letter 13-2017, issued on March 28, 2017. I hope that you continue to find the issues discussed in our quarterly newsletters of value to your financial institution. If you have any comments or suggestions for our newsletter, please forward them to Senior Review Examiner Steve Murphy at stmurphy@fdic.gov.

M. Anthony Lowe Regional Director

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Bank Office Structure Changes: A Summary Guide

Banks plan for and implement structural changes, such as opening or closing a branch office or merging with another institution, after considering their business strategies and markets within which they operate. Some expansionary changes may enable a bank to offer products and services to new communi-ties. In contrast, other changes, like a decision to close an office, may stem from a need to reduce operating costs and improve profitabil-ity and result in decreased products and ser-

vices to existing bank communities. This arti-cle highlights information regarding the FDIC application process that banks should consider as they implement structural changes. Bankers are encouraged to review applicable FDIC Rules and Regulations and the Federal Deposit Insurance Act when they are consid-ering a change that requires them to submit an application. Part 303 of the FDIC Rules and Regulations outlines filing procedures, in part,

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for an application to establish a branch office; to relocate a branch or a main office; and involving a transaction sub-ject to the Bank Merger Act. Section 42 of the Federal Deposit Insurance Act and the Interagency Policy State-ment concerning Branch Closing No-tices and Policies provide requirements and guidance when a bank plans to close a branch office. The Divisions of Depositor and Con-sumer Protection (DCP) and Risk Man-agement Supervision coordinate the review of structure changes when noti-fication is provided to the FDIC. This article is limited to a discussion of bank structure changes from a DCP perspec-tive. When structural changes are planned, banks should incorporate into the anal-ysis a review of and the impact on their compliance management system (CMS) and Community Reinvestment Act (CRA) performance and requirements. Factors considered by DCP are provid-ed below. The Establishment of New Offices and Mergers Part 303 of the FDIC Rules and Regu-lations outlines filing procedures, in part, for an application to establish a branch office; to relocate a branch or a main office; and involving a transaction subject to the Bank Merger Act. The FDIC’s analysis of applications for the establishment of a new office and mer-gers will include a review of a bank’s most recent and prior compliance and CRA examination reports, including assigned ratings. The FDIC will also review correspondence with the bank;

consumer complaints; enforcement actions; and public comments received. Particularly in cases concerning a mer-ger, planned revisions to a surviving bank’s CMS should ensure a holistic integration of operating systems, regu-latory infrastructure, products, services, and documentation and disclosure re-quirements. The potential impact of an application on CRA performance and fair lending will include a review of cur-rent and proposed office locations; the reasonableness of changes to CRA as-sessment area(s); and demographics, including minority populations and geographies. Concerning CMS and CRA issues, banks should be aware of the effect of applications on future reg-ulatory requirements. Examples in-clude the acquisition or establishment of a new office in a metropolitan statis-tical area that could make a bank sub-ject to new requirements, such as the Home Mortgage Disclosure Act, or an increase in total assets that could change a bank’s profile from a ‘small bank’ to an ‘intermediate small bank’ for CRA evaluation purposes. The FDIC will consider the effect of any evidence of discriminatory or other illegal credit practices in any geography by a bank or in any CRA assessment area by an affiliate whose loans have been considered as part of a bank’s lending performance. Section 345.28(c) of the FDIC Rules and Regulations provides examples of violations that result from discriminatory or other ille-gal credit practices and describes their effect in assigning a bank’s CRA rating. Similarly, Section 345.29 explains the effect of CRA performance on applica-

tions. Specifically, the FDIC takes into account the record of performance un-der the CRA of each applicant bank, as well as any views expressed by interest-ed parties that are submitted in accord-ance with the FDIC's filing procedures under Part 303. A bank's CRA perfor-mance record may be the basis for denying an application or approving an application subject to conditions. The processing of an application could be delayed by receipt of a CRA protest, which warrants further review or inves-tigation by the FDIC. A CRA protest is any adverse comment from the pub-lic related to a pending filing that raises a negative issue relative to the CRA, whether or not it is labeled a protest and whether or not a hearing is request-ed. The FDIC’s website provides links through which comments about a fu-ture CRA examination and/or a pend-ing application can be submitted, as well as where a list of pending applica-tions subject to the CRA can be ob-tained: https://www.fdic.gov/regulations/cra/. Further, a proposed or current unfavorable compliance and/or CRA rating; a proposed and/or current compliance enforcement action; and unresolved violations, restitution issues, consumer complaints, or investi-gations will likely cause delays in the processing of an application and could result in an approval subject to condi-tions or in a denial. Office Closings The same criteria considered when a branch or merger application is re-ceived are used to analyze office clos-ings. Section 42 of the Federal Deposit Insurance Act requires insured deposi-

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tory institutions to provide prior no-tice of any branch closing and estab-lish internal policies for branch clos-ings. The policy should outline the factors for determining which branch to close, which customers to notify, and procedures for providing notices consistent with the statute. Branch offices subject to Section 42 requirements include a traditional brick and mortar branch and any sim-ilar facility other than a main office at which deposits are received, checks are paid, or money is lent. A branch office does not include an automatic teller machine (ATM), loan produc-tion office, or temporary branch of-fice. The following are also not con-sidered office closings for purposes of Section 42: relocations, mergers, consolidations, or other acquisitions, including branch sales, which do not result in branch closings; and tempo-rary interruptions in service. Other criteria banks should consider in the closing of an office include the following:

a determination if the office to be closed is located in, or in close proximity to a census tract(s) classified as low-income, moder-ate-income, high minority, major-ity minority, underserved non-metropolitan middle-income, or distressed non-metropolitan mid-dle-income;

the location of competitors, other open offices of the bank, or of-fices acquired following a merger;

declining trends in transactions and other customer usage;

lease arrangements; and

the advent of new technologies and alternative delivery systems such as ATMs, non-cash pay-ments (credit and debit cards), on-line, telephone, and mobile banking, and remote deposit cap-ture services.

When an office closing is planned, timely notifications must be provided to the FDIC and bank customers. The FDIC must receive notification no later than the first day of the 90-day period ending on the date pro-posed for the closing. This notice shall identify the branch to be closed; the proposed date of closing; a de-tailed statement of the reasons for the decision to close the office; and statis-tical or other information to support the reasons consistent with a bank’s policy for branch closings. Customer notifications must be in at least one regular account statement or in a sep-arate mailing no later than the begin-ning of the 90-day period ending on the date proposed for the closing. That notice shall state the location of the office to be closed and the pro-posed closing date, and either identify where customers may obtain service following the closing date or provide a phone number for customers to call to determine such alternative sites. If a bank maintains branches in more than one state and the branch office to be closed is in a low-income or moderate-income census tract, the notice shall contain the mailing ad-dress of the appropriate FDIC Re-gional Office and a statement that comments on the proposed branch office closing may be mailed to the FDIC. If a comment is received and

deemed not frivolous, the FDIC is required to consult with community leaders in the affected area and con-vene a meeting of representatives of the agency and other interested de-pository institution regulatory agen-cies with community leaders and oth-er affected persons. Section 42 does not give the FDIC the authority to require a bank to keep an office open. However, at its discretion, the FDIC may explore the feasibility of obtaining adequate alter-native facilities and services for the affected area. Further, a bank must post a notice in a conspicuous man-ner on the branch office premises at least 30 days prior to the closing date. That notice shall state the proposed closing date and identify where the customers may obtain services fol-lowing the closing date or provide a phone number for customers to call to determine such alternative sites. It is helpful to also submit copies of the notices that will be provided to cus-tomers and posted on the branch office premises to the FDIC when submitting the notification of a branch closing. In conclusion, a bank should appro-priately plan for bank structure changes, to include consideration of all applicable consumer compliance requirements and the FDIC’s expec-tations regarding the applications pro-cess. Banks are encouraged to con-tact their appropriate FDIC Regional Office if there are questions or con-cerns.

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7535-01-U

NATIONAL CREDIT UNION ADMINISTRATION

Regulatory Reform Agenda

AGENCY: National Credit Union Administration (NCUA).

ACTION: Notice; Request for Comment.

SUMMARY:

NCUA has established a Regulatory Reform Task Force (Task Force) to oversee the

implementation of the agency’s regulatory reform agenda. This is consistent with the spirit of

President Trump’s regulatory reform agenda and Executive Order 13777. Although NCUA, as

an independent agency, is not required to comply with Executive Order 13777, the agency

chooses to comply with its spirit and has reviewed all of NCUA’s regulations to that end. The

substance of the Task Force’s initial report is provided in this notice. NCUA seeks public

comment on the report and if any other regulatory changes should be made.

DATES: Comments must be received on or before [INSERT DATE THAT IS 90 DAYS

FROM PUBLICATION IN THE FEDERAL REGISTER].

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Executive Order, the agency is choosing to comply with its spirit. From the end of March to the

beginning of May, the Task Force met and reviewed all of NCUA’s Regulations to determine

how best to fulfill the aims of the Executive Order and decide what regulations could be

eliminated, revised, improved, or clarified. This report contains the Task Force’s initial findings

and recommendations.

The Task Force has developed a comprehensive four-year agenda for reviewing and revising

NCUA’s Regulations. The regulations are broken into three tiers that cover the four-year scope.

The Task Force approached this task with Executive Order’s stated policy of “alleviat[ing]

unnecessary regulatory burdens placed on the American people” and the strong philosophy of

regulatory relief embraced by both the new administration and NCUA’s Chairman in mind. As

a result, the Task Force’s recommendations eclipse the depth of changes previously proposed

during NCUA’s Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) and

annual one-third regulatory review processes. For comparison purposes, this report also includes

NCUA’s 2016 EGRPRA report to Congress and the agency’s regulatory review

recommendations from 2014-2016. These attachments are not included in this Federal Register

notice. Instead, they are available on NCUA’s website at https://www.ncua.gov/regulation-

supervision/Pages/rules.aspx.

The primary factors for evaluating the tiers were degree of impact and degree of effort, which are

described in Section II of this report [section III.c of this Federal Register notice]. “Impact” is

focused on the magnitude of the benefit that would result from the change, and how broadly the

stakeholder community would be impacted. “Effort” considers how much time and energy

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