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Top Story Compliance Related

05/13/2020

Morgan Stanley Smith Barney pays $5M SEC penalty

The Securities and Exchange Commission has reported that Morgan Stanley Smith Barney LLC (MSSB) has agreed to settle charges that it provided misleading information to clients in its retail wrap fee programs regarding trade execution services and transaction costs. MSSB has agreed to pay a $5 million penalty that will be distributed to harmed investors. Wrap fee programs offer accounts in which clients pay an asset-based “wrap fee” that covers investment advice and brokerage services, including trade execution.

05/13/2020

OCC Bulletin on changes to annual meeting dates

The OCC has issued Bulletin 2020-51 in response to inquiries from banks that are considering changes to the date, time, or location of their annual meetings as a result of stay-at-home and similar orders and potential health concerns. The bulletin also addresses the specific regulatory requirements applicable to federal savings associations (FSA) that may seek to delay their annual meetings.

05/12/2020

Colorado mortgage-loan servicer to pay consumers $1.275M

The CFPB has announced a settlement with Specialized Loan Servicing, LLC (SLS), a mortgage-loan servicer in Colorado. As of February 29, 2020, SLS serviced a portfolio of mortgage loans worth about $112.69 billion. The consent order requires SLS to pay $1.275 million in monetary relief to consumers in the form of redress and waiver of borrower deficiencies, pay a $250,000 civil money penalty to be deposited into the Bureau’s Civil Penalty Fund, and implement procedures to ensure compliance with the Real Estate Settlement Procedures Act (RESPA) and its implementing regulation, Regulation X. The Bureau’s investigation found that since January 2014, SLS violated RESPA and Regulation X by taking prohibited foreclosure actions against mortgage borrowers who were entitled to protection from foreclosure, and by failing to send or to timely send evaluation notices to mortgage borrowers who were entitled to them. SLS's actions were also found to have violated the Consumer Financial Protection Act of 2010.

05/11/2020

FinCEN renews GTOs

The Financial Crimes Enforcement Network (FinCEN) announced the renewal of its Geographic Targeting Orders (GTOs) that require U.S. title insurance companies to identify the natural persons behind shell companies used in all-cash purchases of residential real estate in twelve metro areas. The renewed GTOs are identical to the November 2019 GTOs, and will be effective from May 10 through November 5, 2020. The purchase amount threshold remains $300,000 for each covered metropolitan area. An FAQ regarding the GTOs was also issued.

05/08/2020

IRS proposes regs for estates and trusts

The IRS has announced it is issuing proposed regulations to provide guidance for estates and trusts clarifying that certain deductions of estates and non-grantor trusts are not miscellaneous itemized deductions. The Tax Cuts and Jobs Act prohibits individual taxpayers from claiming miscellaneous itemized deductions for any taxable year beginning after December 31, 2017, and before January 1, 2026. Specifically, the proposed regulations clarify which deductions are allowable in figuring adjusted gross income and are not miscellaneous itemized deductions

05/07/2020

Bureau Compliance Aid on ECOA and PPP applications

The CFPB has issued a Compliance Aid with three clarifying FAQs on the topic of "SBA Paycheck Protection Program and Notification of Action Taken."

The FAQs clarify 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.

The FAQs also make clear that if the creditor denies an application without ever sending the application to the SBA, the creditor must give notice of this adverse action within 30 days. It further clarifies that a creditor cannot deny a loan application based on incompleteness where the creditor has enough information for a credit decision but has yet to receive a loan number or response about the availability of funds from the SBA.

05/07/2020

Fed posts flood insurance Q&As

The Federal Reserve Board has issued Consumer Affairs Letter 20-7, "Flood Insurance Compliance in Response to the Coronavirus," with two frequently asked questions regarding flood insurance compliance requirements during the national emergency caused by the COVID-19 pandemic.

Q1. If a bank works with its borrowers by extending maturities/payments or balloon payments due to the COVID-19 emergency, would the bank be required to make a new flood zone determination and provide new notices of special flood hazards for the extended loan?

A1. Under the federal flood statutes and the Federal Reserve’s implementing regulation, flood insurance requirements are generally triggered upon the making, increasing, renewing, or extending of any designated loan. If a lender modifies a loan by extending the loan term, then this change is a triggering event, and flood insurance requirements would apply, provided no other existing exception to the requirements under the Federal Reserve’s regulation is applicable. Such requirements may include establishing escrow for flood insurance payments and fees, making a flood zone determination on the property securing the loan, or providing the notice of special flood hazards to the borrower. The federal flood statutes and the Federal Reserve’s implementing regulation do not provide for a waiver of these requirements in emergency situations.

However, consistent with the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised)" dated April 7, 2020, when exercising supervisory and enforcement responsibilities, the Federal Reserve will take into account the unique circumstances impacting borrowers and institutions resulting from the COVID-19 emergency. The Federal Reserve will take into account an institution’s good-faith efforts demonstrably designed to support consumers and comply with the flood insurance requirements. The Federal Reserve expects that supervisory feedback for institutions will be focused on identifying issues, correcting deficiencies, and ensuring appropriate remediation to consumers. The Federal Reserve does not expect to take a public enforcement action against an institution, provided that the circumstances were related to the COVID-19 emergency and that the institution made good faith efforts to support borrowers and comply with the flood insurance requirements, as well as responded to any needed corrective action.

Q2: How does FEMA Bulletin W-20002 affect the force placement requirement under the Flood Disaster Protection Act and the implementing regulation?

A2: On March 29, 2020, the Federal Emergency Management Agency (FEMA) announced in Bulletin W-20002 that the grace period to renew National Flood Insurance Program (NFIP) policies that expire between February 13, 2020 and June 15, 2020 (FEMA emergency period) has been extended from 30 days to 120 days due to the COVID-19 emergency. Based on Bulletin W-20002, a borrower will be covered by the NFIP policy if the flood insurance premium is paid before the 120-day grace period expires.

In accordance with the flood insurance force placement regulations, when a lender makes a determination that a designated loan is not covered by a sufficient amount of flood insurance, it must notify the borrower. If the borrower does not provide evidence of sufficient coverage within 45 days after notification, the lender must force place flood insurance in an amount that will satisfy the regulatory requirements. However, in light of Bulletin W-20002, for NFIP policies expiring during the FEMA emergency period:

  • A lender may provide the required notice to the borrower after determining the policy has expired with an indication that the NFIP grace period has been extended for 120 days. Lenders may inform borrowers that, in light of Bulletin W-20002, force placement will not occur until after the end of the 120-day period.
  • Alternatively, a lender may provide the required notice to the borrower at least 45 days before the end of the 120-day grace period.
  • For either alternative, the lender must force place flood insurance on the borrower’s behalf if the borrower does not pay the premium by the end of the 120-day grace period.
  • Consistent with the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised)” dated April 7, the Federal Reserve does not expect to take supervisory or enforcement action against the lender for violating the flood insurance force placement requirements, provided that the circumstances were related to the COVID-19 national emergency, and that the lender has made good faith efforts to support borrowers and comply with the flood insurance requirements, as well as responded to any needed corrective action.
  • Lenders should be aware that if they force place flood insurance for NFIP policies that expire during the FEMA emergency period prior to the expiration of the 120-day grace period and the borrower pays the premium by the end of the 120-day grace period, consistent with the flood insurance regulatory requirements, the lender would be required to refund the borrower for any overlapping flood insurance coverage.

05/06/2020

IRS posts FAQs on CARES Act relief for IRAs and retirement plans

The IRS has added a webpage on "Coronavirus-related relief for retirement plans and IRAs questions and answers". addressing the provisions of section 2202 of the CARES Act, which provides for special distribution options and rollover rules for retirement plans and IRAs and expands permissible loans from certain retirement plans.

The FAQs address how these distributions should be reported by retirement plan and IRA custodians and trustees. They also indicate that the IRS will be issuing more detailed guidance soon, and that it will follow the same principles as related guidance issued following Hurricane Katrina.

05/06/2020

Agencies modify Liquidity Coverage Ratio

The Federal Reserve, FDIC, and the OCC have issued a joint press release announcing their publication [85 FR 26835] today of an interim final rule that modifies the agencies' Liquidity Coverage Ratio (LCR) rule to support banking organizations' participation in the Federal Reserve's Money Market Mutual Fund Liquidity Facility and the Paycheck Protection Program Liquidity Facility. In particular, the interim final rule facilitates participation in these facilities by neutralizing the LCR impact associated with the non-recourse funding provided by these facilities.. The rule, which is effective today, does not otherwise alter the LCR or its calibration. Comments are due by June 5, 2020.

05/05/2020

FDIC posts CRA compliance exam ratings

The FDIC has issued a list of 67 state nonmember banks recently evaluated for compliance with the Community Reinvestment Act (CRA). The list covers evaluation ratings that the FDIC assigned to institutions in February 2020. Sixty-one were rated Satisfactory and two rated Needs to Improve.. Congratulations to the four banks that were rated Outstanding (links are to their evaluations):

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