Amy Avitable, Principal Consultant, TCS Financial Solutions

Increased regulatory burden for mortgage lending, lending to members of the military, overdraft protection, and other U.S. bank products.

TCS Financial Solutions has a rigorous process for generating business requirements and incorporating them into TCS BaNCS. Business requirements are generated not just from written regulations as published, but also by “hidden requirements” generated by regulators’ interpretations and expectations. Even what regulators are saying at industry events can have a marked impact upon the industry.

Following are some the key focus areas in banking regulation for 2015:

Integrated Mortgage Disclosures

The biggest implementation effort in 2015 stems from integrated Regulation Z and RESPA disclosures mandated by the Dodd-Frank Mortgage Reform and Consumer Protection Act. These changes, which go into effect in August 2015, impact more than just the dis-closures themselves:

  • Broader Consumer Protection

    – The new amendments expand the scope of Regulation Z to cover trusts that are primarily for a personal, family or household purpose. Further, they eliminate the RESPA exemption for loans on property of 25 acres or more. Both changes will result in more loans being classified as consumer loans and subjected to Regulation Z and RESPA disclosures.

  • More Complex Origination Process

    – One frequently overlooked amendment is the modified definition of “application” under RESPA, which will impact application processes for mortgage lenders and brokers. Further, the rules contain complicated timing requirements for providing and revising the Loan Estimate, as well as providing and revising the Closing Disclosure. These requirements will result in significant loan processing changes, such as effectively requiring a pre-closing process at least seven days before closing to ensure that closing disclosures are accurate and timely.

Unfair, Deceptive or Abusive Acts and Practices (UDAP/UDAAP)

UDAP/UDAAP violations are extremely high risk and can result in high penalties and restitution, even in situations where a bank is in technical compliance with other governing regulations.

For example, under a 2014 amendment to Regulation B, banks must provide certain mortgage loan applicants with copies of an appraisal no later than three business days before closing unless the customer provides a waiver. In response, many lenders began adding a waiver form to their application packets. While this practice technically complies with the requirements of the Regulation B amendment, many examiners have taken the position that such a widespread waiver of the wait period is not in the best interest of the consumer and is a UDAP/UDAAP violation.

The Consumer Financial Protection Bureau is particularly concerned about high risk products, such as overdraft protection and prepaid cards, and intends to issue written guidance on each in 2015. As CFPB proposed rules and examiner positions are circulated, it is important to update your UDAP/UDAAP risk assessments and programs accordingly.

Lending to Service members

The John Warner National Defense Authorization Act covers consumer credit to members of the armed forces and their families. Today, the rules are limited to payday and similar loans that are not typically offered by banks. However, the Department of Defense has issued proposed regulations to expand the requirements to other kinds of consumer credit, such as overdraft lines of credit and personal installment loans. The requirements are extremely burdensome, which will make lending to service members considerably more complicated if the proposal is finalized.

At TCS Financial Solutions, we pay close attention to regulators’ pronouncements at every level in order to incorporate the highest levels of flexibility and compliance into TCS BaNCS. By monitoring these changes, TCS Financial Solutions ensures that its customers are adequately prepared for whatever regulatory environment may arise.

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