Compliance Update with Amy K
by Amy Kleinschmit
Chief Compliance Officer
5/11/2020

CFPB PPP Loan Guidance

The Consumer Financial Protection Bureau (CFPB) recently issued FAQs regarding the Small Business Administration’s (SBA) Paycheck Protection Program (PPP) and Regulation B requirements to notify applicants within 30 days of receiving a “completed application” of the creditor’s approval, counteroffer, denial or other adverse notice regarding the application.

In its FAQs, the CFPB clarifies that a PPP application is only a “completed application” once the creditor has received a loan number from the SBA or a response about the availability of funds. This ensures that the time awaiting this information from the SBA does not count towards the 30-day notice requirement, and that applications will therefore not “time out” during the process.

If a creditor receives an SBA PPP loan application and refuses to grant the credit request without ever submitting the PPP loan to the SBA, the creditor does need to provide a Regulation B adverse action notification. Under Regulation B a creditor must provide an adverse action notification within 30 days after taking adverse action on a PPP application. If an application is missing information but provides sufficient data for a credit decision, the creditor may evaluate the application, make its credit decision, and notify the applicant accordingly. If the credit is denied, the applicant must be given the specific reasons for the credit denial or notice of the right to receive the reasons.

Consumer Compliance Outlook – 2020 Issue

The Federal Reserve has issued its first 2020 edition of Consumer Compliance Outlook which can be found here.

The first article in this edition is a good review of the Federal Reserve’s most commonly cited compliance violations. While these common findings related to what examiners were finding at banks, it can be helpful for credit unions to review as well to ensure their policies/procedures/processes are in compliance with the regulatory requirements too. The top four most common violations found were: Regulation B’s spousal signature requirements; Flood insurance purchase and force-placement requirements; Regulation Z’s finance charge requirements; and Fair Credit Reporting Act’s adverse action notice requirement.

The article delves into various findings details and regulatory requirements – but to highlight some of the findings, read on. With regard to Reg B’s spousal signature requirements, examiners were finding this violation in the commercial and ag loans. In some cases, examiners have observed that violations occurred because a creditor had strong controls for consumer loans but not for commercial and agricultural loans. It is important to recognize that Regulation B applies to consumer and commercial credit because the definition of “credit” in Section 2(j) is not limited to consumer credit.

With regard to common Regulation Z violation, the Article explained these relate to a number of things including understating finance charges for closed-end residential mortgage loans by more than the $100 tolerance permitted under Section 18(d). Examination data indicated that this violation typically occurred because either the lender had insufficient knowledge of what constitutes a finance charge across varying circumstances or because of incorrect configuration or use of disclosure software. For example, one Report of Examination found that a bank did not subtract the origination fee from the amount financed, resulting in an understated finance charge disclosed to the customer. Examiners also found instances in which some prepaid charges — such as monthly guaranty payments, inspection fees, settlement and closing fees, and title fees — were not included in the finance charge, leading it to be understated by more than the $100 tolerance. Another common violation was related to software platform deficiencies. In some instances, these platforms included default settings that erroneously allowed the loan processor to bypass the proper finance charge designation during the setup of required disclosures.

As a reminder, in the NCUA’s Supervisory Priorities for 2020, Truth in Lending Act (Regulation Z) was included in the lineup. The letter explained examiners will evaluate credit union practices concerning annual percentage rates and late charges. These reviews will assess how credit unions apply loan payments to principal, interest, fees and other charges, and whether the application is consistent with the written agreement and disclosures. Examiners will also review whether credit unions appropriately levy late fees and will test whether credit unions are accurately disclosing finance charges and annual percentage rates.

As always, CUAD members may contact Amy Kleinschmit with any compliance related questions.

 

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