The Compliance 911 Show

In Podcast 73, Dean and Len discuss a recent preliminary injunction issued by a Texas federal judge against the 2023 Community Reinvestment Act (CRA) rule. This injunction has halted the implementation of the new rule, pending legal proceedings. The court found substantial grounds suggesting the federal banking regulators may have exceeded their authority in expanding CRA evaluation markets and including deposits and other retail banking products under the regulation. The court's decision highlighted four key reasons for this view: the inconsistent interpretation of "entire community" in the new rule, the questionable authority to regulate beyond credit activities, the application of the "Major Questions Doctrine," and a substantial likelihood of plaintiff’s success with irreparable harm due to compliance costs. Dean and Len predict a favorable outcome for the plaintiffs, with the case likely progressing to the Supreme Court, prolonging the legal process into 2025. They advise banks to comply with the current rule and suggest banks compute and target the proposed calibrated benchmarks for at least a satisfactory performance rating on the Lending Test. The episode ends with Dean and Len emphasizing the importance of staying informed and prepared as the situation develops.Brought to you by GeoDataVision and M&M Consulting

This episode of the podcast, focusing on climate risk as an emerging regulatory compliance issue, features a dialogue between Len and Dean. They discuss how climate-related risks, especially in the financial sector, have gained attention in recent years. New York State is highlighted for its proactive stance in providing guidance for financial institutions on managing these risks, including a section published on the NYDFS website. Dean emphasizes the lack of specific regulations but notes earlier general principles issued by the OCC regarding climate-related financial risk management. They also delve into the use of data and mapping techniques to assess climate risks at a granular level, stressing the importance of geocoding records and correlating them with climate hazards. The discussion concludes with an emphasis on financial institutions starting to identify and assess climate risks, considering both physical and transition risks, and integrating these into their overall risk management frameworks. The episode promotes their consulting services for assisting institutions in managing climate risks.Brought to you by GeoDataVision and M&M Consulting

Podcast #71 discusses how banks can estimate their performance under the new Community Reinvestment Act (CRA) rules. Len highlights bankers' concerns about the increased difficulty in passing the CRA exam with the new rules, which predict a significant rise in failure rates. He emphasizes the importance of the Retail Lending Test, explaining that failing this test results in an overall unsatisfactory CRA rating.To estimate their performance, banks should first focus on the Retail Lending Test and identify their Retail Lending Assessment Areas. The next steps involve determining benchmarks based on geographic and borrower distribution tests and applying multipliers to create calibrated benchmarks for a low satisfactory rating. Banks then need to compute their penetration rates in different income tracts and compare them to these benchmarks.Dean asks about data sources for these calculations, and Len suggests using HMDA and CRA data, along with FFIEC demographic files. He also notes that GeoDataVision will publish relevant benchmarks on their website for further guidance. The podcast ends with an invitation for future topic suggestions from listeners.
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Episode 70 of "Compliance 911, show" titled "2024 Regulatory Hot Topics," discusses the major regulatory challenges facing financial institutions in 2024. Hosts Len and Dean mark their 70th episode, reflecting on various topics covered over the series. They delve into significant regulatory changes including the Community Reinvestment Act (CRA) reforms and Dodd-Frank 1071 rules, highlighting their impact on banks and the ongoing lawsuits challenging these regulations. Additionally, they touch on proposed changes to the Fair Credit Reporting Act (FCRA), slow progress in Anti-Money Laundering rulemaking, and new standards for Automated Valuation Models (AVMs). The episode also covers updates in Fair Lending, digital adaptations for FDIC signs, and mortgage-related regulations, emphasizing their significance for financial institutions in 2024.
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Episode 68 of the podcast discusses the investigation process for Electronic Funds Transfers (EFT) under the Electronic Fund Transfer Act. The hosts, Dean and Len, emphasize the importance of consumer protection in EFT and remittance transfers, outlining the process for consumers to dispute unauthorized or incorrect transactions. They stress that financial institutions must promptly begin investigating disputes upon receiving notice, either oral or written, from the consumer. The regulation mandates strict timelines for these investigations, with institutions having 10 business days to investigate, extendable to 45 or 90 days for certain cases if provisional credit is provided. The episode highlights the need for financial institutions to be aware of and comply with these regulations, including the application of Regulation E to Person to Person (P2P) payments. The hosts conclude by encouraging listeners to stay informed about their institution’s error resolution processes and suggesting future podcast topics.
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Podcast #69, "The Coming Perfect Storm," features a discussion between Dean and Len Suzio about new regulatory challenges for the banking sector. Len highlights the implications of two key regulations: Section 1071 of the Dodd-Frank Act and the new Community Reinvestment Act (CRA) rule. Section 1071 requires detailed reporting of small business lending data, including race and ethnicity of borrowers, to the Consumer Financial Protection Bureau. The revised CRA rule emphasizes the impact of fair lending issues on a bank's CRA rating and introduces more stringent criteria for evaluating discriminatory or illegal credit practices.
Len expresses concerns about the potential misuse of small business lending data and the new CRA rule's assessment areas, which could unfairly impact banks' operations and regulatory compliance. He notes that these changes could lead to more aggressive regulatory approaches, especially in light of the Department of Justice's "Anti-redlining Initiative." The podcast concludes with an acknowledgment of the seriousness of these regulatory changes and their potential impact on the banking industry.
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"The New CRA" features a discussion between Dean Stockford and Len Suzio about the recent changes in the Community Reinvestment Act (CRA) regulations. Len has dedicated significant time to understanding the new CRA rule, which is a lengthy 1,494 pages, and has even published articles on the topic.
He describes the new rule as an "unmitigated disaster for the banking industry," a conclusion drawn not from his personal opinion but from the regulators' own data. The new CRA rule significantly increases the failure rate of CRA exams for banks, estimated to be 10-12%, up from the long-term average of 1.2%. This increase is attributed to the new Retail Lending Test included in the rule.
The new rule introduces additional assessment areas for banks, leading to evaluations in markets far removed from their physical branches. This creates competitive disadvantages for banks in these remote areas, as they are evaluated against the same benchmarks as local lenders. The failure rates in these new assessment areas are alarmingly high, with estimates of 22.4% for Retail Lending Assessment Areas and 28.8% for Outside Retail Lending Areas.
Len highlights that the complexity and size of the new rule, along with the extensive data manipulations required for compliance, may be overwhelming for many. He cites quotes from regulators that explicitly state that the increased failure rate was a deliberate intent of the regulators to "raise the bar" for CRA performance evaluations.
Dean concludes the podcast by expressing that listeners will likely be apprehensive yet eager to learn more about the changes in the new CRA. Both hosts encourage listeners to send in suggestions for future podcast topics.
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In this podcast, Dean and Len discuss the September guidance from the CFPB concerning the Equal Credit Opportunity Act (ECOA), credit denials, and Artificial Intelligence (AI). The guidance emphasizes that lenders using AI for credit decisions must provide specific and accurate reasons for adverse actions. This includes updates to sample adverse action forms and checklists to reflect actual reasons for credit denials or changes in conditions. The discussion also touches on potential updates to Home Mortgage Disclosure Act (HMDA) data collection to align with these expanded reasons for adverse action. Dean advises lenders to update ECOA assessments, review policies, procedures, forms, and ensure compliance and substantiation in credit decisions, especially in the context of AI and complex algorithms.
 
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In Podcast #65 titled "The New CRA", Dean and Len discuss the recent changes introduced in the new Community Reinvestment Act (CRA) published just over a week ago. Len highlights three significant changes: the reclassification of bank categories based on their assets; the transformation in assessment areas which now include "facility-based assessment areas", "retail lending" assessment areas, and "outside retail lending areas"; and the modification in performance tests and standards. Particularly, the changes in bank categories mean that small banks are those with assets less than $600 million, intermediate banks have assets ranging from $600 million to less than $2 billion, and large banks have assets of $2 billion or more. The new assessment areas represent a departure from the traditional model, where every assessment area had to contain at least one branch. The performance tests and standards, especially for small banks, may see unannounced changes in benchmarks.
Len delves deeper into the impact of these changes, emphasizing the controversial nature of the new retail lending and outside retail lending areas. He details the criteria that define these areas, stressing that they might face legal challenges. Regarding performance tests, while small banks will ostensibly continue to be evaluated based on current tests, Len anticipates that they might be unofficially held to the new standards. He explains the "Retail Lending test" applied to intermediate and large banks, including a lending volume screen and distribution tests. The podcast concludes with Len's assertion that small banks, despite seemingly escaping significant changes, might still be substantially affected by these calibrated benchmarks in the new CRA.
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In episode 64 of the Compliance 911 podcast, hosts Len Suzio and Dean Stockford discuss the intricacies of Reg. CC, a regulation that deals with funds availability. Dean emphasizes the importance of understanding the definitions within regulations as the same word or phrase might carry different meanings in different contexts. He goes on to explain that Reg. CC was implemented to enforce the provisions of the Expedited Funds Availability Act of 1987, which set the rules for when a bank had to make deposited funds available to depositors. The regulation is highly technical and mandates strict timing provisions based on factors such as the nature of the item deposited, where and to whom the deposit was made, and the bank's funds availability policy.
Dean delves deeper into the timing specifics, noting that funds availability begins at the start of a “business day.” He lists types of deposits that must be made available on the next business day, such as cash, electronic payments, U.S. Treasury checks, and certain other checks. Len, intrigued by the strictness of the rules, inquires about any potential exceptions. Dean highlights that banks can place Exception Holds, also known as Safeguard Holds, to mitigate risks. These holds allow financial institutions to manage fraud, but they must adhere to specific protocols, including providing customers with written notices detailing reasons for the extended hold. The episode concludes with Dean urging listeners to thoroughly understand Reg. CC.
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