2015 Banking Regulatory Outlook
There’s a huge price for non-compliance
Edward Kramer, Executive Vice President of Regulatory Affairs, Wolters Kluwer Financial Services
Implementing the new Truth-in-Lending Act and Real Estate Settlement Procedures Act (TILA-RESPA) integrated disclosure requirements that take effect August 1, 2015, represents one of the major compliance challenges for banks. The new rules extend far beyond mere cosmetic changes to two loan disclosure documents -- and at 1,888 pages, present unprecedented changes that will impact banks’ entire mortgage operations, including business processes, technology, policies and procedures, vendor relationships, employee readiness, and customer service. Failure to comply could result in significant fines and penalties costing thousands of dollars each day, as well as regulatory and reputational risks.
We will continue to see heightened regulatory focus on a number of fronts in 2015, ranging from increased scrutiny around mortgage-servicing rules and bank examinations, to the introduction of new HMDA data-collection requirements, to efforts to tamp down on discriminatory pricing in the indirect lending market, to the use of proxy methodology in adjudicating banks’ lending practices. Disparate impact is under review and being challenged in the courts. Cyber security will continue to be a contentious issue as banks contend that ultimate responsibility should rest with those companies where breaches occurred, rather than banks bearing the burden.
The public comment period around the CFPB’s new Home Mortgage Disclosure Act data collection requirements ended in late October 2014. Although 2015 will bring promulgation of the new rules, we don’t yet know the details or the amount of time banks have to prepare before requirements go into effect. What we do know is that the extent and breadth of additional data collection fields required will be significant, imposing added challenges on banks.
Regarding bank examinations, we anticipate heightened regulatory scrutiny with increased attention on the role a bank’s board of directors plays in overseeing compliance. Increasingly, examiners are monitoring to ensure that boards are fully involved, not only in the establishment, but also in the oversight of an organization’s compliance programs. For many the answer lies in automated compliance-management systems that deliver consistency, centralization, and visibility to compliance efforts, benefits that are as fully realized at the board level as they are by bank compliance officers.
Heightened emphasis on mortgage servicing and sub-servicing rules will continue -- the CFPB has been very demonstrative about its intent in this area. During 2015 we can expect continued changes in mortgage-servicing rules that will include new protections for surviving family members and other homeowners. Regulation in this area is an evolutionary process. Non-bank mortgage servicers are bracing for an onslaught of new capital recommendations from the Conference of State Bank Supervisors that could go beyond servicing to impact originations.
From the challenges of implementing the new TILA-RESPA disclosure rules to capturing new HMDA data requirements, growing compliance burdens will put new, additional pressures on banks’ operations and systems. The reality is that financial institutions today cannot adequately monitor, track, and report to regulators on their lending activities without sophisticated technological systems.
Only a few years ago, the compliance officer was on the hot seat when examination findings found gaps or other problems with a bank’s activities. Today, the chief information officer is every bit as accountable to and involved in ensuring the integrity and comprehensiveness of a bank’s array of lending programs. Either you must build the technology competency in-house to meet today’s regulatory requirements, or hire vendors or consultants to do it on behalf of your organization.
Given the Aug. 1, 2015, deadline for TILA-RESPA compliance, not only should you have a game plan at this point, but you should be well down the track in working with your in-house teams and vendors/consultants to implement the changes necessary to ensure readiness. We recommend that banks test their systems no later than May 1 to ensure readiness for the August deadline.
Finally, we encourage banks to build a thoughtful and comprehensive compliance strategy for 2015. The old mantra “an ounce of prevention …” will be fully relevant, as non-compliance increasingly is leading to severe monetary consequences that range from fines and penalties to harsh reputational and regulatory consequences.
Peggy Bresnick Kendler has been a writer for 30 years. She has worked as an editor, publicist and school district technology coordinator. During the past decade, Bresnick Kendler has worked for UBM TechWeb on special financialservices technology-centered ... View Full Bio
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