The Compliance 911 Show

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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In this podcast episode, Dean and Len discuss the implications of the new Section 1071 rule, which extends beyond the banking community. Len highlights that the number of reporters under Section 1071 is estimated to be four times greater than under the Community Reinvestment Act (CRA). They focus on the impact of Section 1071 on CRA reporting. Len mentions that the Office of the Comptroller of the Currency (OCC), Federal Reserve Board (FRB), and Federal Deposit Insurance Corporation (FDIC) announced their intention to replace the reporting of small business and small farm loans under CRA with Section 1071 reporting. Additionally, the definition of a small business loan will change, and the Section 1071 definition will replace the CRA definition.
Len emphasizes that this change allows for unlimited loan sizes based on the size of the business, not the loan. This has significant implications for CRA. Furthermore, Len discusses how Section 1071 may affect community development lending under CRA and raises questions about how the regulators will treat loans reported under both Section 1071 and CRA. Len also mentions some aspects of Section 1071, such as protected demographic information and reporting the course of action for small business loans, that will not impact CRA.
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In a podcast, hosts Len and Dean discussed the heightened focus on Enterprise Risk Management (ERM) within financial institutions. They highlighted the regulatory pressure spurred by issues like compliance, bank failures, Climate Risk, ESG factors, and political influences. Dean pointed out common gaps in ERM policies, such as lack of coverage for technology systems, strategic plans, and talent management. 
He advised that ERM policies should emphasize data and technology structures for reporting, mention strategic plans, and reference "Talent Management" for skill enhancement. The conversation concluded with a recommendation for risk managers and senior executives to review and enhance their ERM policies based on these insights to withstand future regulatory scrutiny.
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In this podcast episode, Dean and Len discuss the Section 1071 Rule, which is the hottest regulatory topic in the financial industry. Len provides an overview of the rule and its implications for lenders. Covered lenders, which include any financial institution that originates 100 or more covered loans for two consecutive years, will need to maintain a data collection system to report on their commercial lending activity. Len also emphasizes the importance of distinguishing between covered and non-covered transactions and being careful about protected demographic information, such as the race, ethnicity, and sex of the principals of the business. The podcast also touches on other important requirements under Section 1071, such as capturing the NAICs code for borrowers and the number of employees and reporting on all applications, not just originated, refinanced, or renewed loans. The episode concludes by encouraging listeners to tune into a more comprehensive 90-minute broadcast on Section 1071.
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This podcast episode discusses Fair Lending and focuses on examiner comments and specific examples of issues from regulators. The hosts, Len and Dean, discuss a scenario where a Compliance Officer or Fair Lending Officer in a community bank reviews loans for evidence of disparate treatment (Redlining). They find a series of portfolio loans where the borrowers received more favorable terms in the form of a better rate, and in each case, all were white men applying alone. Upon further review, they find that these exceptions were never submitted to the loan committee for approval, which is required by policy.
The episode then lists several examiner comments on Fair Lending, including appropriate documentation of exceptions within files, tracking mechanisms for exceptions, and reviewing exception log reports periodically. They caution against the quality of fair lending risk assessments, which must include sufficient qualitative and quantitative detail as to the overall risk profile of the institution.
 
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In this episode of Podcast 51, hosts Dean and Len discuss the complexities of community development under the Community Reinvestment Act (CRA). They outline the four different definitions that qualify for community development credit: affordable housing, community services, economic development, and revitalization/stabilization. Len provides an in-depth explanation of each definition and shares tips for maximizing community development credit.
They also discuss common misconceptions about claiming credit for community development activities outside assessment areas. Len emphasizes the importance of claiming credit for all qualified community development activities, as it can contribute to a higher performance rating under CRA regulations. This episode is a valuable refresher for anyone seeking clarity on the intricacies of community development under the CRA.
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