Regulations to Watch in 2016
The New Year brings with it many different types of celebrations and traditions. In the world of financial institution compliance the tradition for the New Year is to await the implementation of new regulations. For the past several years, there have been a large number of new regulations that have been implemented. Fortunately, the pace of new regulations has slowed dramatically and 2016 will not see a large number. In fact, there are only two significant regulatory changes that will take place in 2016. Despite this fact, as you plan for the compliance year, remember that the supervisory emphasis of the regulatory agencies can have the same impact as new regulations.
There are several sources for regulatory changes. Regulatory agencies respond to world events, the political environment, resources allocations, technology and many other factors. One valuable source of information that is often overlooked are the annual plans or statements that are issued by the prudential regulators. All three issue a plan that addresses the areas that they will emphasize in the upcoming year. In addition, there are many organizations and agencies that list the effective dates for regulations. Gathering information on the new regulations and regulatory initiatives is a key first step for planning the compliance year.
Two (and one/half) Significant Changes
The most significant regulatory changes that will occur in 2016 are the flood insurance rules and changes in regulation Z that will expand the ability of small creditors to make loans with terms that would otherwise make them non-qualified mortgages without fear. There is also the TILA / RESPA Integrated Disclosure Rule aka, “TRID” that went into effect in the final quarter of 2015.
The flood insurance rules are likely to impact your institution in two significant areas. First, for loans with a residence as collateral, there is now an exception for detached structures. No longer will you have to get insurance for that random tool shed on the property that you have taken as collateral. There are several considerations that go with this change.
The second change impacts the way that forced placed insurance may be charged to the customer. In some cases, the customer may be charged back to the day that the policy lapsed for flood insurance. Again, there are several considerations to make when applying this rule to your institution.
The flood rules also apply an escrow requirement for institutions that are over $1billion in assets. We discussed these changes in detail in a three part blog that is on our website at www.vcm4you.com. For more information, please review our blogs.
Another significant change is the expansion of the ability of small creditors to enjoy qualified mortgage protections for mortgage loans. The CFPB described the change this way;
There are a variety of provisions in the rules that affect small creditors, as well as small creditors that operate predominantly in rural or underserved areas. For instance, a provision in the Ability-to-Repay rule extends Qualified Mortgage status to loans that small creditors hold in their own portfolios, even if consumers’ debt-to-income ratio exceeds 43 percent. Small creditors that operate predominantly in rural or underserved areas can originate Qualified Mortgages with balloon payments even though balloon payments are otherwise not allowed with Qualified Mortgages. Similarly, under the Bureau’s Home Ownership and Equity Protection Act rule, such small creditors can originate high-cost mortgages with balloon payments. Also, under the Bureau’s Escrows rule, eligible small creditors that operate predominantly in rural or underserved areas are not required to establish escrow accounts for higher-priced mortgages. 
This expansion creates a great deal of opportunity for smaller financial institutions to consider mortgage lending. We will discuss this opportunity in detail in blogs to come in the near future.
The regulatory change that received the most publicity last year was the TILA / RESPA Integrated Disclosure Rule which was widely known as TRID. This rule actually was implemented in the last quarter of 2015. Since its start, several regulatory agencies have released examination procedures that indicate how they will treat financial institutions the first time new loans are reviewed for compliance with these rules. According to many publications, technical or individual violations will be de-emphasized. The main area of emphasis will be on the system for compliance that has been developed by the institution.
In addition to changes in regulations, it is important to glean as much information as is available from the regulatory agencies about the areas of focus for examinations. A change in the area of focus can have the same impact as a change in regulation. For example, in the area of flood insurance when the focus changed from the appropriate amount of insurance to a review of flood notices, a number institutions that previously had satisfactory reviews found themselves with findings and in extreme cases, civil money penalties. It is the change in focus of the regulators that often has many an institution asking “why were we okay at the last examination, but not now? Fortunately, many of the regulatory agencies publish strategic plans which indicate the areas that will be emphasized for the year. Here is a brief review:
The CFPB’s Deputy Assistant Director for origination, Calvin Hagins, recently warned mortgage lenders of the four main examination priorities for 2016—loan originator compensation plans, the ability-to-repay rule, the TILA-RESPA Integrated Disclosures (TRID) rule, and marketing service agreements.
Speaking at the California MBA Legal Issues Conference, indicated that CFPB examiners will spend a substantial amount of time evaluating loan compensation schemes at every exam at every entity. 
The Office of the Comptroller of the Currency, in its 2016 strategic operating plan released the following priorities
- Evaluating adequacy of compliance risk management and assessing banks’ effectiveness in identifying and responding to risks posed by new products, services, or terms.
- Examiners will also assess compliance with the following: – new requirements for integrated mortgage disclosure under the Truth in Lending Act of 1968 and the Real Estate Settlement Procedures Act of 1974.
- Relevant consumer laws, regulations, and guidance for banks under $10 billion in assets.
- Flood Disaster Protection Act of 1973
- The Servicemembers Civil Relief Act of 2003.
In addition, the OCC pointed out that fair access to credit will also be a priority;
- Assessing banks’ efforts to meet the needs of creditworthy borrowers and to monitor banks’ compliance with the Community Reinvestment Act and fair lending laws.
- Examiners at banks with more than $500 million in assets will continue to use the Fair Lending Risk Assessment Tool in their fair lending assessments. 
The FDIC’s 2015 strategic plan is still in effect and it covers several years. While this plan is not as specific in the areas of emphasis as some of the other agencies, the plan does mention that there will be an emphasis placed on consumer protection, the CRA and Fair Lending laws.  We have interpreted this language to mean that UDAAP, Fair Lending and the Community Reinvestment Act are all areas that should receive attention at your institution before, the examiners arrive.
The Federal Reserve System in its annual compliance hot topics presentation that areas of focus will include regulation C (HMDA), Regulation B spousal signature rules and UDAAP. 
In the area of BSA/AML FinCEN is now taking comments about new rules for due diligence. The original proposal was controversial in that it essentially required financial institutions to perform due diligence on the beneficiaries of accounts as well as in some cases, the customers of the financial institutions clients. While it is evident that the proposal will be scaled back somewhat, it is also logical to assume that customer due diligence will be an area of focus for the FinCen in both the short term and the long term.
As you develop your audit plan and compliance risk assessment for the year, both new regulations and regulatory emphasis should receive strong consideration. As a best practice, it is recommended that you contact your regulator and ask for information on areas of emphasis for 2016 and plan accordingly.
 CFPB Finalizes Rule to Facilitate Access to Credit in Rural and Underserved Areas- September 21, 2015
 Deputy Assistant Director for Originations, Calvin Hagins, comments to California MBA Legal Issues Conference
 OCC Committee on Bank Supervision FY 2016 Operating Plan
 2015 Strategic plan
 2015 Strategic plan