MEMBER OF ALLINIAL GLOBAL, AN ASSOCIATION OF LEGALLY INDEPENDENT FIRMS © 2010 Wolf & Company, P.C.

Compliance Year in Review

and What’s Next

Brian M. Shea, CRCM, CAMS

March 20, 2018

• Today’s presentation slides can be downloaded at

www.wolfandco.com/webinars/2018

• The session will last about 45 minutes, and we’ll then

have time for Q & A.

• Our audience will be muted during the session.

• Please send your questions in using the “Questions Box”

located on the webinar’s control panel.

Before we get started…

About Wolf & Company, P.C.

• Established in 1911

• Offer Audit, Tax, and Risk Management services to over

250 financial institutions

• Offices located in:

– Boston, Massachusetts

– Springfield, Massachusetts

– Albany, New York

– Livingston, NJ

• Over 200 professionals

As a leading regional firm founded in 1911, we provide our clients

with specialized industry expertise and responsive service.

3

Financial Institution Expertise

• Over 60 Risk Management Professionals:

– IT Assurance Services Group

– Internal Audit Services Group

– Regulatory Compliance Services Group

– WolfPAC® Solutions Group

• Provide services to over 250 financial institutions:

– Approximately 90 FIs with assets > $1B

– Approximately 25 publicly traded FIs

– Constant regulatory review of our deliverables

• Provide Risk Management Services in 27 states and 2

U.S. territories

4

5

Today’s Objectives

As part of today’s session we will discuss:

• A recap of major regulatory changes that took effect

in 2017

• Key regulatory changes coming up in 2018

• Areas of high or changed regulatory scrutiny

Outline

I. 2017 in Review

II. 2018 Priorities

III. Additional Areas

IV. Questions?

6

2017 in Review

• Mortgage Servicing rules took effect

• Military Lending Act rules took effect for credit cards

• TRID Amendments issued (effective 2018)

• Payday Lending final rule issued (effective 2019)

• Arbitration rule shot down

• Supreme Court ruling on Fair Debt Collection

Practices Act

• Commercial Appraisal proposal issued

7

2018 PRIORITIES

8

CFPB Leadership Changes

• Director Richard Cordray departs agency in

November 2017

• Cordray names Leandra English as Acting Director;

President Trump overrides decision, naming Mick

Mulvaney

• Judge denies preliminary injunction from English in

January 2018

• Mulvaney takes action on various matters

9

CFPB Leadership Changes

CFPB Expectations Going Forward:

• Slowdown of new rules and regulations

• Complete repeals of rules and regulations unlikely

absent Congressional action

• Possible delay of future rules (ex. prepaid rule)

• Reduction in “Rulemaking by Enforcement”

• Changes in Enforcement Strategy

• Complaint-driven focus

10

Flood Insurance Program Expiration

• National Flood Insurance Program (NFIP) continues

to impose significant costs on taxpayers

• Industry and lawmakers desire reform

• Existence of program specifically tied into recent

budgetary battles in Washington and Government

shutdown(s)

• Of critical importance is what to do if the program

expires

• Helpful Resources:

– FDIC Financial Institution Letter 23-2010

– NCUA Guidance 2010-CU-08

11

Flood Insurance Program Expiration

Key Impact of NFIP Shutdown:

• FEMA unable to issue new or renewed flood

insurance policies

• FEMA unable to increase coverage on existing

policies

12

Flood Insurance Program Expiration

Impact on Lender:

• Loans in flood zones can still be made, without

violating flood regulations

• Other flood rules must still be complied with

• Still required to perform flood determinations

• Still required to provide any required flood notices

• Still have safety and soundness risks to consider

• Need to be ready to obtain flood insurance policies

as soon as NFIP is back in place

13

Flood Insurance Program Expiration

Lender options for new loans:

• Have borrower still complete application and pay

premium, to be held by insurer until NFIP re-

authorized;

• Postpone the loan closing until NFIP re-authorized;

• Require borrower to obtain private flood insurance;

OR

• Make loan without payment or coverage (if willing to

accept the risk)

14

Flood Insurance Program Expiration

Renewal considerations:

• FEMA typically processes payments as soon as

program is reauthorized

• Lender may want to keep accepting payments

• Alternatively require borrowers to obtain private

coverage

• Notify servicers, if utilized

15

Flood Insurance Program Expiration

Criteria to consider in risk evaluations:

• Volume and concentration of lending in special flood

hazard areas

• Loans already in portfolio subject to renewal

• Lending activity during lapse of coverage

• Compliance-risk appetite

• Secondary market concerns

16

Flood Insurance Program Expiration

Retroactivity

• Whether policies will be retroactive depends on

specifics of NFIP reauthorization

• If yes:

– Policy applied and paid for during lapse effective as of date

of application and payment

– If completed application and payment received by NFIP

Servicing Agent before lapse begins, covered property is

protected in event of flood after that date

– Also applies to borrowers who renewed policies on or before

lapse begins and policies that otherwise would have expired

during lapse

17

Flood Insurance Program Expiration

Retroactivity

• If no:

– New or renewal policies can’t be obtained for period when

NFIP was not authorized unless obtained prior to lapse

– New policies or renewals issued after lapse effective on date

of reauthorization

– Losses would not be covered by NFIP if occur in period of

lapse

18

TRID Amendments

• Published by CFPB on August 11, 2017

• Effective October 10, 2017, but not mandatory until

October 1, 2018

19

TRID Amendments

Key updates include:

• Good Faith Requirements/Tolerances

• Shopping list

• Rounding

• Construction Loans

• Cash to Close Table

20

TRID Amendments

Key updates include:

• Partial exemption for housing finance agencies/non-

profits

• Extends coverage to cooperative units

• Provides clarifications for trusts

• Sharing of disclosures with other parties in origination

process

• Other clarifications and amendments

21

Reg. CC Amendments

• Published by Federal Reserve on May 1, 2017

• Effective July 1, 2018

• Primarily impacts electronic items such as remotely

deposited checks, electronic checks and

electronically created items

• Impacts warranties, indemnities and returns

• Doesn’t directly impact traditionally customer-facing

matters such as account opening disclosures, funds

availability schedules or hold notices

22

Reg. CC Amendments

Major changes:

• Indemnities created for remotely

deposited checks

• New warranties for electronic

checks and electronic returned checks

• Creates indemnities for electronically

created checks

• Adjusts expeditious return process

(timing, notice) for all checks

23

Marijuana and Banking

• January 4, 2018 memo from Attorney General Jeff

Sessions

• Repeals the Cole Memos

• 2014 FinCEN Guidance remains in effect

• Institutions will want to take this into consideration

when evaluating whether to bank marijuana-related

businesses

• Many state attorney generals seeking safe harbor for

marijuana banking

24

SAR Updates

• Announced by FinCEN on

January 26, 2018

• New Online Form starting

June 2018

• Batch filers required to submit

via XML instead of ASCII

• Batch filers have 6 months from

go-live date to adhere to XML

(until 1/1/2019)

25

SAR Updates

New/Revised Fields include:

• Geographic targeting order/Advisory/Other activity

• New Suspicious Activity Type – Cyber crime

• Additional subtype selections for suspicious activities

• Additional product type selections

• New IP address fields

FINCEN User Guide available

26

Pending Legislation

Economic Growth, Regulatory Relief and Consumer

Protection Act

• Also known as Senate Bill S.2155

• Originally proposed by Senator Mike Crapo

• Passed Senate Banking Committee in December

2017

• Passed by Senate vote on March 14, 2018

Details are still subject to change until reconciled with

previously passed House bill and signed into law by

President

27

Pending Legislation

Highlights:

• Increased exemptions for lenders from expanded

HMDA reporting

• Extends qualified mortgage (QM) consideration for

portfolio loans

• Extends 18 month exam cycle for institutions

between $1 - $3 billion

• Exempts smaller servicers from Reg. Z escrow rules

• Provides rural appraisal exemptions for transactions

of $400,000 or less

28

Pending Legislation

Highlights:

• Removes TRID 3-day waiting period when lower APR

offer made

• Makes permanent certain SCRA and tenant

foreclosure protections

• Provides temporary authority under SAFE Act for

MLOs switching employers

• Requires credit bureaus to provide free credit

freezes, active duty member monitoring

• Provides protections for employees disclosing

financial elder abuse

29

Additional Areas

Areas where we continue to see scrutiny:

• Consumer Complaints/Inquiries

• Overdraft Balances

• Reg. E Error Resolution

• BSA Exemption documentation

30

Regulatory Change Best Practices

• Utilize many resources such as:

– National and state banking associations

– Local networking groups

– Regulator websites

– Vendor newsletters and alerts

• Interact with other institutions/compliance personnel

• Treat proposed rules versus final rules differently

• Look out for last minute clarifications/technical

corrections

31

Regulatory Change Best Practices

• Work backwards from mandatory compliance date to

help track key dates and timelines

• Work with vendors, be proactive!

• Train impacted personnel

• Revise policies, procedures, forms, etc…

• Monitor and test beforehand

• Ensure coverage is within audit plan

32

Brian M. Shea, CRCM, CAMS

Regulatory Compliance Senior Manager

Phone: (617) 261-8133

Email: bshea@wolfandco.com

Today’s Presentation can be downloaded at:

www.wolfandco.com/webinars/2018

Questions?