Last week the compliance and risk management worlds reacted with joy over the signing of Senate Bill S. 2155. For most bankers, the passing of this bill represented the most significant regulatory relief in decades. Of noted importance was the rollback of the expanded data collection rules for the Home Mortgage Disclosure Act (HMDA). However, the collective elation was short‐lived as we turned to each other and asked, “Now What?”
There are obviously many unknowns regarding the effect of the new law on current data collection efforts. HMDA is somewhat of a unique regulation in that it requires data collection to be completed for each calendar year and reported to the CFPB. Changing the law in the middle of the year creates quite a dilemma for financial institutions that have devoted significant resources to comply with the new data collection requirements.
Although the law has changed, Regulation C has not caught up to the change. It is unclear whether the agencies will go through the normal process for promulgating regulations from the law with comment period(s). Will there be a typical period where a Notice of Proposed Rulemaking is published? Will there be a period for comments? TCA has reached out to the CFPB and as of the date of this article, the CFPB has not provided an official response. We assume guidance from the CFPB will be forthcoming, but what should you do now?
Whether you continue to collect the data is ultimately a risk-based business decision, especially since it is not clear what exact fields go or stay. One could take the position that a decision was made to stop collecting the expanded data based on the change to the law. Perhaps the biggest challenge, however, and the one which we feel is truly going to drive your decision‐making, is the ability of the systems you rely upon to make changes to HMDA‐related programs. It is not so simple to eliminate the new fields because several of the previous fields were de‐ and re‐constructed. In addition, the language used in the new law creates some unintended consequences which need to be considered. For instance, the law indicates institutions that meet the “500 and under” origination limits are not subject to certain data collection requirements. Fields such as loan number and property location are part of the “exempted fields”; however, the Reg now appears silent on whether or not this information should be reported at all. We believe the intention was to require that data now will be collected under 2017 rules; but according to the current wording, a loan number and geographic information do not need to be reported at all.
The bottom line is this: There is no easy fix. There are still too many unanswered questions. With so much uncertainty, it is unlikely that system vendors would devote resources to writing code for “fixes” until the industry gets more clarification on data reporting expectations for the calendar year 2018.
And don’t forget: How will fair lending exams be conducted going forward? Will examiners now request loan credit information separately?
It’s a tough call on how to proceed. In time, we will have clarity, but waiting puts an undue burden on banks no matter what the official guidance says. For now, you will have to weigh the benefits of over‐collecting if you are eligible for relief and enter codes to block reporting of information not mandated assuming your vendor allows such a process. You have made significant changes to processes, systems, and controls. Therefore, we recommend contacting your core processor and vendors for any other systems which are part of your HMDA process. Start the conversation with them about how they intend to build collection and reporting options into their software.
Regulations + Interagency Overdraft Guidance + examiner interpretation = compliance risk. What risks are in your program? Join TCA’s Brian Crow for an OD discussion on what examiners do and do not accept, guidance misinterpretations and current enforcement/litigation trends June 12th.