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Regulatory Update - August 2015

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Grant Thornton’s monthly Regulatory Update tracks key regulatory news and enforcement activity within the financial services industry so you can stay informed about the impact of current events on your business.

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INDUSTRY NEWS
August 31, 2015 – OCC Deputy Comptroller Discusses Compliance, Cybersecurity, and Innovation
Deputy Comptroller for Compliance Operations and Policy Grovetta Gardineer discussed compliance challenges facing banks serving members of the U.S. armed forces, cybersecurity, and responsible innovation. She delivered her remarks as a keynote of the 2015 Association of Military Banks of America’s 2015 Fall Workshop. The Deputy Comptroller’s remarks featured commentary on the Military Lending Act and technological change within the financial services industry.  
Read the Deputy Comptroller’s full remarks >>

August 27, 2015 – FDIC Consumer Newsletter Features Tips on Choosing and Using Bank "Rewards"
Bank rewards programs tied to credit or debit cards or other products can provide consumers with benefits such as points to be used for travel and shopping or cash back on purchases. Before jumping into any rewards program, however, it is important to evaluate the potential costs and other important factors warns the Federal Deposit Insurance Corporation (FDIC) in the agency’s latest Consumer News release. The newsletter features tips for maximizing the benefits and minimizing the mistakes when choosing a rewards program and also features articles on mobile financial services, automated teller machines (ATMs), credit scores, reverse mortgages, and deposit insurance.
Read the full FDIC Summer 2015 Consumer News >>

August 25, 2015 – CFPB Monthly Complaint Snapshot Spotlights Credit Reporting Complaints
The Consumer Financial Protection Bureau (CFPB) released its monthly consumer complaints snapshot. The report spotlights credit reporting complaints, which sharply increased compared to the prior month and the prior year. According to the report, the majority of the credit reporting complaints were about problems with incorrect information on the reports. This month’s snapshot also highlights trends seen in complaints coming from the Los Angeles, California metro area. As of August 1, 2015 the CFPB has handled over 677,000 complaints across all products.
Read the full August 2015 CFPB Monthly Complaint Report >>

August 24, 2015 – FDIC Releases Summer 2015 Supervisory Insights
The FDIC released its summer 2015 issue of Supervisory Insights, which features two articles of interest to examiners, bankers, and supervisors. One article highlights the critical role of strategic planning and corporate governance in navigating a challenging operating environment. The second article discusses the new requirements related to bank investment in securitizations as a result of the enactment of the Dodd-Frank Act. Additionally, the Supervisory Insights provides an overview of recently released regulations and supervisory guidance.
Read the full FDIC summer 2015 Supervisory Insights >>

August 17, 2015 – CFPB Director Offers Remarks at Managing Someone Else’s Money Event
At an event hosted by the Consumer Financial Protection Bureau (CFPB) entitled “Managing Someone Else’s Money”, CFPB Director Richard Cordray discussed the Bureau’s launch of a series of tailored state guides to help further educate and empower consumers and their caregivers to make informed financial decisions to protect their loved ones. After receiving input from older Americans and financial caregivers, the CFPB released plain-language guides for fiduciaries. However, because fiduciary laws and duties vary across states, the CFPB is launching a second phase of the “Managing Someone Else’s Money” initiative with the State of Virginia being the first state to receive specially adapted versions of the guides. These new guides are directed at four types of fiduciaries. The first is for people who are granted power of attorney to make decisions about money and property for a loved one. The second is for people appointed by a court as guardians or conservators of property. The third is for those who have been named as trustees under revocable living trusts, and the fourth is for those appointed by a government agency to manage someone else’s income benefits, such as Social Security or veterans benefits.
Read Director Cordray’s full remarks >>

August 14, 2015 – Federal Reserve Board Adopts Risk-Based Capital Surcharges for Global Systemically Important Bank Holding Companies
The Federal Reserve Board (FRB) is adopting a final rule that establishes risk-based capital surcharges for the largest, most interconnected U.S.-based bank holding companies pursuant to section 165 of the Dodd-Frank Act. The final rule requires a U.S. top-tier bank holding company that is an advanced approaches institution to calculate a measure of its systemic importance. A bank holding company whose measure of systemic importance exceeds a defined threshold would be identified as a global systemically important bank (G-SIB) holding company and would be subject to a risk-based capital surcharge. The G-SIB surcharge is phased in beginning on January 1, 2016, through year-end 2018 and becomes fully effective on January 1, 2019. The final rule also revises the terminology used to identify the bank holding companies subject to the enhanced supplementary leverage ratio standards to ensure consistency in the scope of application between the enhanced supplementary leverage ratio standards and the GSIB surcharge framework. With limited exceptions, the final rule is effective December 1, 2015.
Read the full FRB Federal Register notice >>

August 10, 2015 – Senator Warren Addresses Concerns Related to New Communication System
In a letter sent to six financial regulators today, U.S. Senator Elizabeth Warren asked about compliance and enforcement issues related to a new communications tool created by Symphony Communications LLC for use by financial institutions. Senator Warren raised concerns about Symphony's description of the new system, "which appear(s) to put companies on notice - with a wink and a nod - that they can use Symphony to reduce compliance and enforcement concerns," and asked the federal regulators for information about the impact of this system on their ability to enforce the law. In her letter, which was sent to heads of the FDIC, Commodity Futures Trading Commission (CFTC), Securities and Exchange Commission (SEC), Department of Justice (DOJ), CFPB, and Financial Industry Regulatory Authority (FINRA), Senator Warren noted that Symphony has described its system as a way to "prevent government spying" with "no backdoors," suggesting that it could be used to reduce compliance and enforcement concerns.
Read Senator Warren’s full letter to the CFPB >>

August 7, 2015 – Comptroller of the Currency Discusses Responsible Innovation and Risk Management
Comptroller of the Currency Thomas J. Curry discussed how innovation can benefit the financial system, the role banks play, and what the Office of the Comptroller of the Currency (OCC) is doing to better understand the benefits and risks of innovative products and services. Recognizing that a large share of financial innovation is happening outside of the regulated banking industry, the OCC has launched a new initiative to address the perception that it is too difficult to get new ideas through the regulatory approval process.
Read Comptroller Curry’s full remarks >>

August 5, 2015 – CFPB Study Finds Electronic Mortgage Closings Can Benefit Consumers
The CFPB published a report on its “Know Before You Owe” eClosing project – entitled Leveraging technology to empower mortgage consumers at closing – which found that borrowers can benefit from electronic closings when navigating the mortgage closing process. Specifically, the results of the pilot indicate that those who closed their mortgage using an electronic platform are generally better off on measures of understanding, efficiency, and feeling empowered than borrowers who used just paper forms. The benefits of eClosings can include faster delivery of the documents and embedded links to help consumers understand specific terms as they come across them. While eClosing transactions are already happening in the market today, adoption is low. The CFPB believes that the eClosing process has the potential to give consumers more time to review closing documents while also providing them with educational tools that can help them navigate the closing process more successfully.
Read the full CFPB eClosing report >>

August 4, 2015 – Office of Financial Research Releases Briefing Comparing US and International G-SIBs
The Office of Financial Research (OFR) released a briefing comparing U.S. and international global systemically important banks (G-SIBs). Research shows that the three largest U.S. banks rank high across multiple measures of systemic importance. Two categories of systemic importance — substitutability and complexity — are dominated by U.S. banks. The OFR finds that banks with higher systemic importance scores do not consistently have higher levels of risk-based capital despite the importance of capital as a buffer against failure. The brief also highlights the effect of exchange rates in making international comparisons and their potential impact on the Basel Committee on Banking Supervision’s (BCBS) recommended capital surcharges for G-SIBs.
Read the full OFR briefing >>

REGULATORY GUIDANCE
August 10, 2015 – FRB clarifies Regulation II Regarding the Inclusion of Transaction Monitoring Costs
The FRB clarified Regulation II – Debit Card Interchange Fees and Routing – regarding the inclusion of transaction monitoring costs in the interchange fee standard. Regulation II implements, among other things, standards for assessing whether interchange transaction fees for electronic debit transactions are reasonable and proportional to the cost incurred by the issuer, as required by section 920 of the Electronic Fund Transfer Act. On March 21, 2014, the Court of Appeals for the D.C. Circuit reversed an earlier decision of the District Court and largely upheld Regulation II against a challenge to the rule by merchant groups. The court found that one aspect of the rule – the FRB’s inclusion of transaction monitoring costs in the interchange fee standard – required further explanation. The clarification issued by the FRB provides the additional justification required by the Court of Appeals' opinion.
Read the full FRB Federal Register notice >>

August 4, 2015 – CFPB Provides Guidance About Private Mortgage Insurance Cancellation and Termination
The CFPB issued a bulletin providing guidance to mortgage servicers regarding the cancellation and termination of private mortgage insurance (PMI). The bulletin explains certain requirements of the Homeowners Protection Act and is intended to help servicers comply with the law. The CFPB has identified substantial industry confusion over implementation of the PMI cancellation and termination requirements in the Homeowners Protection Act, and examinations by the Bureau have identified violations of several different provisions of the Act.
Read the full CFPB bulletin >>

RECENT ENFORCEMENT ACTION ACTIVITY
August 20, 2015 – Hidden Loan Interest Rates and Fees
The CFPB and the New York Department of Financial Services (NYDFS) filed a lawsuit in federal court against two companies, Pension Funding, LLC and Pension Income, LLC, and three of the companies’ individual managers for deceiving consumers about the costs and risks of their pension advance loans. The CFPB and NYDFS allege that the companies duped consumers into borrowing against their pensions by deceptively marketing the product as a sale instead of a loan and failing to disclose high interest rates and fees. The CFPB and NYDFS are seeking to end the illegal practices, to prevent further consumer injury, and to obtain redress for consumers and other monetary relief.
Read the full CFPB press release >>

August 19, 2015 – Deceptive Credit Enrollment Tactics
The CFPB ordered Springstone Financial, LLC to provide $700,000 in relief to victims of deceptive credit enrollment tactics. Many consumers who signed up for Springstone’s deferred-interest loan product at dental offices to pay for dental work were led to believe that the product was interest free. In fact, interest accrued from the date of the consumer’s purchase and was charged if the balance was not paid in full before the promotional period ended. Approximately 3,200 consumers who signed up for the product ultimately were charged and paid deferred interest.
Read the full CFPB Consent Order >>

August 12, 2015 – Illegal Student Loan Servicing Practices
Citizens Bank will pay roughly $35 million in repayments and penalties for failing to credit hundreds of thousands of customers for the full amount of their deposits. Instead, the bank, which operates retail branches in approximately a dozen states, kept the difference when discrepancies arose between the amounts individual and business customers actually deposited and the totals recorded from their deposit slips, regulators said. The OCC, FDIC, and CFPB said investigations found the problem arose between January 2008 and November 2013. The regulators said that Citizens Bank credited customers' accounts with the totals on deposit slips instead of the actual sum deposited and failed to verify and correct deposit inaccuracies above the $25 or $50 thresholds even though Citizens Bank told customers that deposits were subject to verification.
Read the full CFPB press release >>
Read the full FDIC press release >>
Read the full OCC press release >>

GRANT THORNTON ANNOUNCEMENTS
Industry Hot Topics: Compliance Examination Readiness*
As the regulatory environment continues to evolve, many of our clients struggle with maintaining a compliance program capable of consistently meeting the demands and compliance requirements of regulators. When compliance examinations are on the horizon, institutions must be able to execute pre-examination self-assessments that identify gaps in the institution’s compliance program so that any weaknesses can be addressed prior to the regulators’ arrival. For institutions unprepared to proactively monitor their own compliance functions and recognize compliance deficiencies prior to an examination, significant penalties may loom.

Grant Thornton’s Regulatory Center of Excellence offers advisory services to help guide institutions through compliance examination readiness reviews so that institutions can address compliance shortcomings before an examination. The attached document describes Grant Thornton’s examination readiness review capabilities, which we tailor specifically to the needs, size, and complexity of the institution. Please do not hesitate to contact Grant Thornton for an exploratory conversation to discuss how we may be able to help you prepare for an upcoming regulatory examination.

* Click here to download the article described above.

Thank you again for your continued interest in Grant Thornton’s monthly Regulatory Update. To discuss challenges impacting your business – or industry developments in general – please contact us to schedule a conversation.