FDIC Regulatory Update
Bank Compliance Association of
Connecticut
April 2012
Hot Topics and Best Practices:
Compliance, CRA, and Fair Lending
Alice Beshara
Assistant Regional Director
New York Region
Kara Ritchie
Supervisory Examiner
New England South Territory
FDIC Regulatory Update
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Compliance Hot Topics
CMS Best Practices
CRA Best Practices
Fair Lending Hot Topics
FDIC Regulatory Update
Hot Topics
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Flood Insurance
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Electronic Funds Transfer
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Lack of Content Insurance
Non-compliant Error Resolution
Procedures and Practices
Overdraft Protection
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Required Pay Issue
Class Action Lawsuits
FDIC Regulatory Update
Hot Topics
Flood Insurance - Contents Insurance
 Flood Insurance is required for contents
if:
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Both the building and contents are taken as
collateral and
The building securing the loan is in SFHA and
the contents are located in that building.
FDIC Regulatory Update
Hot Topics
Flood Insurance - Contents Insurance
 Common Question:
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How much insurance should be purchased?
 Bank should use a reasonable method of
valuing the contents.
 Refer to FDIC Press Release dated October 14,
2011 for guidance that updates the
Interagency Questions and Answers Regarding
Flood Insurance dated July 21, 2009 at:
http://www.fdic.gov/news/news/press/20
11/pr11163.html
FDIC Regulatory Update
Hot Topics
Flood Insurance - Contents Insurance
 If the bank chooses to release contents
instead of obtaining insurance:
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Be aware of any safety and soundness
implications before releasing.
Release of only UCC may be insufficient.
FDIC Regulatory Update
Hot Topics
EFT – Error Resolution Procedures
 Issue: EFT Disclosure complies with
Regulation E requirements, but bank
practice and procedures do not comply
with Regulation E requirements.
FDIC Regulatory Update
Hot Topics
EFT – Error Resolution Procedures
Examples:
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Before accepting the claim or investigating the
claim:
 Bank requires customers to complete a
questionnaire or other bank document.
 Bank requires customers to get claim or other
bank-required documents notarized.
 Bank requires customers to file a police
report.
 Bank rejects error claim if it is not in writing.
FDIC Regulatory Update
Hot Topics
EFT – Error Resolution Procedures
 Best Practices to avoid EFT error
resolution issues:
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Perform periodic monitoring of EFT error
resolution logs, including review of back up
documentation and conversation logs.
Request audit include full scope EFT error
resolution audit to test compliance.
Interview employees in areas where error
claims are received to verify if practices are
consistent with Regulation E.
Review complaints.
FDIC Regulatory Update
Hot Topics
OD –Required Pay:
 What is the issue?
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Bank has policy and practice of not
intentionally allowing any overdrafts for any
customers at POS/ATMs and
Occasionally the bank is required to pay
ATM/POS transactions that result in an
overdraft due to payment processing service.
FDIC Regulatory Update
Hot Topics
OD –Required Pay:
 Regulation E requires that a bank cannot
charge an overdraft fee for an ATM/POS
transaction unless consumer opts-in to
have these 2 transaction types covered.
FDIC Regulatory Update
Hot Topics
OD –Required Pay:
 Some banks with a policy and practice of
not permitting any ATM/POS transactions
overdraw accounts sent Opt-in Notices to
customers.
FDIC Regulatory Update
Hot Topics
OD –Required Pay:
 Some of these banks continued their
practice of only paying Required Pay
items into overdraft for all customers,
whether or not they opted-in.
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Those who opted-in were charged an overdraft
fee.
Those who did not opt-in were not charged an
overdraft fee.
FDIC Regulatory Update
Hot Topics
OD –Required Pay:
 In many instances, the disclosures and
information provided to these customers
along with the Opt-in Notices did not
explain:
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That the customer would only be allowed to
overdraw their account in Required Pay
situations.
That the bank still has to pay transactions into
overdraft in Required Pay situations even if
they don’t assess a fee.
FDIC Regulatory Update
Hot Topics
OD –Required Pay:
 Recommended Corrective Actions:
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Stop charging opted-in consumers overdraft
fees for Required Pay transactions.
Provide restitution to those customers who
paid overdraft fees for Required Pay
transactions to mitigate potential reputational
and litigation risks.
FDIC Regulatory Update
Hot Topics
OD –Class Action Lawsuits:
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Several large, national banks subject to
OD-related lawsuits.
 Processing debit card transactions from
highest dollar amount to lowest dollar
amount.
Beginning to see these lawsuits at local or
regional community banks.
FDIC Regulatory Update
Hot Topics
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FDIC New York Region Teleconference Series
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Most recent held on February 9, 2012.
Script and Q&A on FDIC’s website at:
http://www.fdic.gov/news/conferences/pastevents.html
New York Regional call announcements are generally emailed
to CEOs of FDIC supervised institutions.
National Bankers' Teleconference Series
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Most recent held February 21, 2012 on Regulation Z's
Mortgage Loan Originator Compensation Rule: Proxies and
Profitability.
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Additional regional and national calls to be held.
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Sign up for FDIC subscription service at:
https://public.govdelivery.com/accounts/USFDIC/subscriber/new?
FDIC Regulatory Update
CMS and Best Practices
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Compliance Management System
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Board and Senior Management Oversight
Compliance Program
 Policies and Procedures
 Monitoring
 Training
 Complaint Resolution
Audit
FDIC Regulatory Update
CMS and Best Practices
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Board and Management Oversight Best
Practices
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Compliance is everyone’s responsibility.
All policies include compliance component.
Ensure adequate training, including outside
training.
Ensure compliance is included in planning,
development, and implementation of business
propositions.
Provide for recurrent reports by the compliance
officer to the Board.
FDIC Regulatory Update
CMS and Best Practices
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Policies and Procedures Best Practices
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Ensure consistent operating guidelines.
Provide standards to review business
operations.
Written, approved annually by Board.
Include goals, objectives, and procedures
reflective of bank practice.
Detail varies with complexity.
FDIC Regulatory Update
CMS and Best Practices
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Monitoring Best Practices
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Proactive approach to identify procedural or
training weaknesses in an effort to preclude
violations.
Regularly scheduled reviews ensures timely
identification of issue.
“Spot” transaction level reviews on a regular
basis ensures accountability of staff.
FDIC Regulatory Update
CMS and Best Practices
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Training Best Practices
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Applies to Board, management, and staff.
Staff – specific, comprehensive training in laws
and regulations, and internal policies and
procedures.
Establish regular training schedule.
Periodically assess knowledge and
comprehension.
Frequently updated.
FDIC Regulatory Update
CMS and Best Practices
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Complaint Resolution Best Practices
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May be indicative of a weakness.
Establish written procedures:
 Designate responsibility to knowledgeable
individual;
 Maintain a list, including oral complaints;
 Report periodically to Board;
 Include procedures for monitoring complaints
to or about third parties.
Take even one complaint seriously – what
caused the issue? May need to look beyond the
stated issue.
FDIC Regulatory Update
CMS and Best Practices
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Audit Best Practices
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Establish follow-up procedures to verify
corrective action was effective.
Ensure compliance receives copy of audit
reports; deficiencies may require change of
procedures or additional training.
Maintain matrix of issues to track correction,
responsibilities, verification, etc.
FDIC Regulatory Update
CRA and Best Practices
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CRA Performance Context
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Changes with each CRA evaluation.
Changes if the assessment area changes.
Changes as the bank grows in complexity and
size.
Changes as the bank changes its business
strategies and focus.
Changes in light of demographics, economic
factors, and housing market.
FDIC Regulatory Update
CRA and Best Practices
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CRA Performance Context
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Consider:
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Bank structure and branching.
Bank products and services.
Demographic data.
Economic data.
Housing data.
Competition data.
Lending, investments, and services needs and
opportunities in assessment area.
Input from community development groups.
Similarly situated lenders performance.
FDIC Regulatory Update
CRA and Best Practices
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CRA Evaluation Preparation
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Best Practices:
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Awareness of CRA Evaluation procedures for type
of CRA evaluation.
Established CRA committee and designated CRA
Officer.
Knowledge of current economic, demographic,
housing, and competitive data and factors.
Conducting community development needs and
opportunities assessment of assessment area.
Obtaining input from community development
groups and organizations.
Knowledge of lending data based on performance
criteria.
FDIC Regulatory Update
CRA and Best Practices
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CRA Evaluation Preparation
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Best Practices:
 Educating pertinent staff about community
development purpose definition.
 Periodically gathering and reviewing
community development loans, investments,
and services information to verify if qualified.
 Tracking qualified community development
information by year, with number and dollar
amounts, and back up information on the
activity.
FDIC Regulatory Update
Fair Lending Hot Topics
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Common Local Fair Lending Violations
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Signature requirements
Credit report pricing
FDIC Regulatory Update
Fair Lending Hot Topics
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National Fair Lending Issues
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Redlining
 Not just looking for a hole in the assessment
or lending area.
 Analysis also focuses on equal access to credit
being offered.
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Consider: demographics, marketing, branch
structure, and lending patterns.
FDIC Regulatory Update
Fair Lending Hot Topics
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National Fair Lending Issues
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Monitoring for Redlining Risk
 Understand demographics of your assessment
area and/or lending area.
 Document what bank considered when
opening or closing a branch in Board or CRA
Committee minutes.
 Evaluate lending distribution in loan portfolio
and identify gaps.
FDIC Regulatory Update
Fair Lending Hot Topics
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National Fair Lending Issues
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Disparate Impact
 A neutral practice that is applied to all
applicants but the standard disproportionately
impacts a prohibited basis group.
 Department of Justice (DOJ) has been
bringing disparate impact cases relating to
indirect auto lending, mortgage brokers,
mortgage loan pricing, and underwriting.
FDIC Regulatory Update
Fair Lending Hot Topics
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National Fair Lending Issues
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Monitoring for Disparate Impact
 Review all lending practices and standards.
 Monitor application rates for various loan
products offered by bank.
FDIC Regulatory Update
Fair Lending Hot Topics
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Monitoring for Fair Lending Risks
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Recommend periodically reviewing DOJ
Enforcement website for settlements and
annual report to Congress.
 www.justice.gov/crt/about/hce/caselist.php
FDIC Regulatory Update
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Answers to questions sent prior to
presentation:
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CRA notice question.
CFPB feedback question.
Compensation Rule under TIL for MLOs
comment.
No Pay Bank in a Required Pay situation versus
Pay Bank and OD limit reached creating a similar
“required pay” situation.
FDIC Regulatory Update
Thank you!
Any questions or comments?
Alice Beshara
Abeshara@fdic.gov
(917) 320-2730
Kara Ritchie
kritchie@fdic.gov
(508) 698-0361 x8035