The Compliance 911 Show

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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In the podcast, Len Suzio from GeoDataVision LLC and Dean Stockford of M&M Consulting delve into the topic of CRA (Community Reinvestment Act) Assessment Area delineation. Len emphasizes the critical importance of banks updating their CRA assessment area maps, particularly in light of changes to census tracts that were officially adopted by the FFIEC on January 1, 2022. He is alarmed to find that many banks haven't updated their maps, which is a mandatory requirement. Len further elaborates on the "performance context" in the CRA regulation, which is pivotal in determining banks' performance expectations. This context includes the unique characteristics of the bank, the demographics of the communities within the CRA assessment area, and the credit markets in local communities.
 
Len explains the various CRA lending tests, such as the Assessment Area ratio, the conspicuous gaps in contiguous tracts test, the LMI tracts penetration test, and the “borrower characteristics” test. He emphasizes that the configuration of the assessment area can significantly impact performance standards, as examiners will evaluate demographic and credit market variables. Len also touches upon the regulatory flexibility banks have in defining their assessment areas and urges banks to review and evaluate their current areas to avoid inflating their CRA performance standards. The conversation concludes with Len and Dean encouraging listeners to take the topic seriously and consider the implications of their assessment area delineations.
 
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Episode 62 of the podcast delves into the intricacies of Electronic Funds Transfers, primarily focusing on the basics of Regulation E (Reg. E) Error Resolution provisions and their stringent timelines for addressing claims. Dean Stockford and Len Suzio begin by discussing the impact of their previous podcasts, with Dean emphasizing the importance of understanding the Electronic Fund Transfer Act, which establishes the basic rights, responsibilities, and liabilities of consumers and financial institutions engaging in electronic fund transfers. Dean outlines the specific definitions of "Electronic Fund Transfer," explaining that it includes activities such as Point-of-sale transfers, ATM transfers, direct deposits or withdrawals, telephone-initiated transfers, and debit card transactions. He further elaborates on the definition of "error" in the context of electronic fund transfers and stresses the immediacy required in investigating these errors. Dean highlights common misconceptions about error notifications, clarifying that financial institutions must start investigations immediately upon receiving an oral notification and not necessarily wait for written confirmation. The episode wraps up with a detailed walkthrough of the steps and timelines involved in resolving errors, emphasizing the importance of provisional credit, extensions for investigations, and the final resolutions based on the findings.
The podcast episode serves as an informative session aimed at demystifying the complex world of electronic fund transfers, ensuring that consumers are well-informed about their rights and the responsibilities of financial institutions. Dean and Len's conversation underscores the significance of timely error resolution and the stringent provisions in place to safeguard consumers. Their discussion provides valuable insights into the potential pitfalls and best practices for financial institutions when dealing with electronic fund transfer errors, ensuring transparency and accountability. Towards the end, they express gratitude to their audience and encourage feedback for future topics, underscoring their commitment to addressing relevant and impactful subjects in the realm of regulatory compliance.

On a broadcast hosted by Dean Stockford, Len Suzio highlights the increase in adverse Community Reinvestment Act (CRA) ratings for banks in the first half of 2023. An article from Standard & Poor indicated that 12 banks received less than satisfactory performance ratings, a jump compared to 14 for the entirety of 2022. Len believes that this rise can be attributed to regulators enforcing stricter performance standards. Evidence for this includes the proposed new CRA Rule, which intends to set higher CRA performance standards. An analysis by bank regulators shows that the new rule would result in a significant increase in the CRA exam failure rate. Len emphasizes that the vagueness in the currently applied performance standards would allow regulators to implement the proposed calibrated standards without officially announcing them. Another notable factor impacting these ratings is the Fair Lending issue and the anti-redlining initiative. Len suggests that banks be aware of these changes and regularly self-evaluate their compliance with these standards.
 
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Len and Dean focus on Electronic Funds Transfers, particularly person-to-person (P2P) payment apps like Venmo, Apple Pay, and Zelle. Dean elaborates on the December 2021 update by the CFPB to the Reg. E FAQs. These guidelines stress that P2P payments, when they involve certain methods like a consumer’s debit card, are subject to the provisions of EFT-Regulation E. The Electronic Funds Transaction Act (EFTA) and Regulation E define an EFT and set the framework for how EFTs involving consumers should work. Dean also clarifies that the rights, liabilities, and rules for users of these apps are dictated by the EFTA and its rule Reg. E. They delve into the protections of Reg. E, detailing how financial institutions need to handle disputes and error reports from consumers in strict timeframes. The duo wraps up by emphasizing that any P2P transactions that fit the EFT definition are governed by the EFTA and Reg. E.
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In this podcast episode, Dean and Len delve into pivotal questions concerning regulatory compliance in the banking sector. Len highlights the two primary questions every compliance and risk officer should ponder: whether their lending performance meets the expectations of examiners and if the performance is statistically significant. 
The conversation comes against the backdrop of changes to the Community Reinvestment Act (CRA) Rule and the Department of Justice's recent focus on the "Anti-Redlining Initiative." Len breaks down the proposed CRA rule, emphasizing performance benchmarks and their significance for banks to ascertain their ratings even before official examinations. 
Transitioning to Fair Lending and redlining, the duo discusses the intricacies of "statistical significance" and how it gauges a bank's performance, especially when lending in majority-minority tracts. Despite the challenges, Len elucidates that unfavorable results don't automatically doom a bank. Factors like defining the market accurately and valid explanations for performance trends play a role.
Both Dean and Len underscore the episode's timeliness, given the prevailing regulatory atmosphere. They hope listeners find the complex topic both engaging and enlightening.
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In this podcast episode, Len and Dean discuss the challenges compliance officers face in keeping up with regulatory changes and guidance. They mention various regulations and topics that have been covered in previous episodes, such as CRA, Fair Lending, Redlining, BSA, AI, and more. They emphasize the importance of staying informed about regulatory changes and offer some techniques for compliance professionals to do so, including creating a regulatory calendar, attending conferences, reviewing internal processes, using compliance software, and building a team.
Dean then provides a specific example of recent guidance from the CFPB in June 2023 regarding the use of AI and chatbots by financial institutions. Although the CFPB hasn't released new regulations, they discuss the risks associated with chatbot usage from a UDAAP (Unfair, Deceptive, or Abusive Acts or Practices) perspective. Dean advises compliance officers to gain a comprehensive understanding of their institution's use of chatbots, identify and discuss risks associated with them, ensure adequate testing is performed, provide updated training on compliance risks, and consider updating the complaint intake form to include chatbot interactions.
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In this podcast episode, Len Suzio and Dean Stockford discuss the implications of the DOJ’s “Combatting Redlining Initiative" that was announced in 2021 and the ensuing increase in redlining referrals from bank regulators to the DOJ in 2022. Len believes this issue represents a significant regulatory compliance risk for banks, despite not being convinced of the DOJ's claim of widespread redlining practices today. Len's primary concern is the alleged misuse of the concept of Reasonably Expected Market Areas (REMA) by regulators, which, in his view, has misleadingly expanded a bank’s Community Reinvestment Act (CRA) assessment area to include markets that are not practical for a bank to serve. This has been a factor in the record-breaking redlining referrals by bank regulators to the DOJ.
Len further explores commonalities among redlining cases, which mostly center on banks' inadequate procedures for identifying redlining risk exposure. He asserts that all lenders should promptly review their systems and procedures for identifying and monitoring potential redlining situations, ensuring they're not only adequate but also consistently implemented. The topic of REMAs versus CRA Assessment Areas is expanded, indicating that lenders should consider these as potentially different and evaluate their standing in relation to each. Len and Dean discuss key factors for REMA consideration, as described in the 2023 Fair Lending examination procedures, and the potential consequences if a bank's lending in REMA minority communities is statistically significantly low.
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In this podcast episode, Len Suzio and Dean Stockford discuss the unregulated use of Artificial Intelligence (AI) in the banking industry. Dean brings up how, amidst the focus on fair lending and Unfair, Deceptive, or Abusive Acts or Practices (UDAAP), there have been increasing concerns about potential bias in AI systems. Specifically, red flags have been raised about scoring systems built into the lending process and the potential for inadvertent redlining in marketing systems. Both Len and Dean concur on the importance of understanding and regulating the use of AI in banking systems.
Dean suggests several proactive measures for financial institutions (FIs) in anticipation of regulatory exams. He recommends conducting an enterprise-wide inventory of all AI-utilizing systems and understanding their specific applications, starting with BSA/AML and Fraud departments, followed by Lending/Underwriting, Marketing, and Human Resources. In addition, he urges FIs to conduct fair lending data analyses and risk assessments with specific emphasis on AI in lending/underwriting systems. To conclude, Dean emphasizes the need for management to understand underwriting systems through thorough testing and analysis, and document vendors' explanations and testing results, to gain a comprehensive view of the risk these systems pose to their institutions.
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