2021 Compliance Priorities, Up to date | ABA Banking Journal

By Lyn Farrell and Kathryn Reimann

Much has occurred since December 2020, once we final supplied our thoughts on 2021 compliance priorities. Compliance professionals should be agile and in a position to pivot so their priorities match the altering occasions within the nation in addition to the dynamic regulatory setting {that a} new administration brings. In our first publish we steered a deal with Honest Lending, UDAAP, CARES Act and COVID-related dangers, and Honest Credit score Reporting Act compliance. We’ve got seen some developments that reinforce our perception on this checklist. Listed below are a couple of updates, in addition to a couple of extra ideas:

Honest lending

The push for racial justice within the U.S. has intensified and the Shopper Monetary Safety Bureau has made clear that this will likely be a spotlight of the company. It’s crucial that compliance leaders take a clear-eyed take a look at their truthful lending analyses throughout their product strains. If anomalies happen, dig into the information to seek out any issues as early as attainable. Devise a rigorous plan to appropriate them and have your story effectively in place earlier than any examinations occur.

Additionally along side truthful lending, take take a look at your promoting, not only for lending, however for banking companies themselves. Honest entry to banking companies shouldn’t be truthful lending, per se, however it’s a shut cousin and one by which the CFPB appears to have an curiosity. Be certain your promoting efforts are supposed to attain all customers inside your market areas.


We suspected that UDAAP could be an space by which enforcement would warmth up, and the alacrity with which the brand new administration on the CFPB has reversed its January 2020 coverage on pleading and implementing the Dodd Frank Act prohibition on abusive acts or practices serves to bolster our view. The 2020 coverage, the legality of which was not examined at regulation, mirrored partly debate concerning the that means of “abusive” as distinct from “unfair” or misleading.” The 2020 coverage acknowledged that the CFPB wouldn’t discover an exercise “abusive” if it was additionally discovered to be “unfair” or “misleading.”

In its reversal the bureau acknowledged that the 2020 coverage failed to offer further certainty across the definition of “abusive,” and criticized the “proof” supplied in help of the director’s resolution. It additionally famous that “adhering to a coverage that disfavors citing or alleging conduct as abusive when that conduct can also be unfair or misleading is opposite to the Bureau’s present precedence of maximizing the Bureau’s potential to efficiently resolve its contested litigation, because it doesn’t permit the Bureau to claim various authorized causes in a judicial motion of administrative continuing.”

So what ought to compliance officers do? Financial institution administration might count on to see the “abusiveness” prong of UDAAP as soon as once more pleaded in enforcement actions. In reviewing promoting, disclosures and options of services and products, compliance officers can be clever to pay particular consideration to interactions with the aged and different client segments. Disclosures or assumptions that could be “truthful” when analyzed towards the whole client universe might be assessed in another way if the advertising and marketing effort centered on a particular client phase with distinctive vulnerabilities. Pupil mortgage prospects would possibly arguably additionally fall into such a class underneath sure circumstances, significantly as congressional and administration policymakers improve their deal with questions on mortgage forgiveness. Care ought to proceed to be taken when monitoring complaints and assortment actions concerning scholar mortgage servicing exercise. Complaints and name middle monitoring also needs to be constructed to spotlight developments in complaints about particular services or products options, or charges, which may recommend {that a} distinctive or significantly weak client phase is complaining at a considerably greater price than the general buyer base.

On this regard, when mining criticism knowledge, be looking out for service provider fraud as effectively. A number of weeks earlier than the CFPB’s rescission of its January 2020 “abusive” assertion, the bureau filed a federal courtroom go well with towards fee processor Brightspeed Options and its former CEO. The bureau’s description of this motion is instructive: The company alleges that “Brightspeed . . . continued to course of . . . remotely created examine funds” for consumer firms that “tricked customers, typically older Individuals, regardless of being conscious of almost 1,000 client complaints, a number of inquiries from police departments across the nation, and return charges averaging greater than 20 %.”

CARES Act and COVID-related Issues

The Paycheck Safety Program has been prolonged till Could 31, 2021. This system continues to be a bit unwieldy, and new procedures are being written as this system persists. The press continues to spotlight allegations of program abuses and fraud. Since lenders are required to certify their debtors’ certifications, there’s a chance for legal responsibility in future evaluations of this system. Having glorious danger administration controls across the taking and processing of purposes is important, as is ongoing monitoring and testing of accomplished transactions, with quick follow-up on purple flags or suspect exercise.

The CFPB has made clear that it’s going to deal with how its regulated establishments responded to authorities efforts to offer COVID-19 associated help, together with: whether or not mortgage debtors had been supplied the suitable forbearance: whether or not stimulus funds had been topic to setoff for unpaid charges or loans; and whether or not banks have a coverage of taking PPP purposes solely from pre-existing prospects. Compliance leaders want to grasp what their group’s stance is on these points and act to doc the explanations for all actions taken, in addition to the controls that had been in place to forestall unfair exercise.

Rising areas of focus: anti-money laundering packages

The Monetary Crimes Enforcement Community has a raft of recent powers and has just lately proven that within the aftermath of profitable felony prosecutions, it can observe up with banks that supplied banking companies over time to prospects responsible of cash laundering. Mix this with: the rising use of cryptocurrencies and transactions in conventional channels; the Company Transparency Act’s tightening of oversight required for LLCs purchasers; and the rising availability of higher expertise for managing AML monitoring with a deal with outcomes and also you provide you with a conclusion that prudent CCOs needs to be enthusiastic about upping their banks’ AML diligence and sport basically.

Meals for thought

State regulation developments. Is your financial institution’s mechanism for maintaining with state laws and driving the modifications by means of your change administration course of as much as the duty? State legislatures and banking departments proceed to be energetic in areas as numerous as predatory lending, privateness protections, financial entry and pay parity, hashish legalization and extra.

Aspirational and different disclosures, together with ESG. It’s the hope of any chief compliance officer that the board and senior administration set the suitable tone on the high of their financial institution—backed up by the sources and supportive actions. What impact would it not have in case your financial institution administration was not prepared to publicly say that it was dedicated to putting integrity, honesty or its purchasers first? Wouldn’t it make a distinction in compliance and disciplinary program effectiveness if the financial institution’s workers not signed on to a code of conduct that required them to uphold these requirements?

As we write this, the Supreme Courtroom considers whether or not a public firm could be sued for fraud in a category motion on the bottom that if the corporate didn’t disclose a battle to a counterparty, its public statements reminiscent of “integrity is on the coronary heart of our enterprise” and “our purchasers’ pursuits all the time come first” are fraudulent misrepresentations. No matter your views on this problem, the evolution of environmental, social accountability and governance matters in boardrooms and amongst monetary regulators needs to be heightening deal with aspirational statements and their foundation.

Who, for instance, will make a willpower as as to if a financial institution has sufficiently cheap grounds for stating that it will likely be carbon-neutral in 10 years? As extra monetary establishments problem ESG-related studies, who within the financial institution is accountable for ensuring that the assertions have factual foundation, and maybe extra essential, that the corporate and its workers act in a fashion according to these assertions? As these packages develop, CCOs’ deal with associated inside course of, governance and possession across the compliance points they current will likely be crucial. Is your compliance division concerned in these discussions? Our recommendation is to just be sure you are conscious of your establishment’s technique and proceed to coach your self and your colleagues as these areas evolve.

Lyn Farrell is a regulatory technique advisor for Hummingbird, a regtech firm. She is a regulatory legal professional with 40 years of expertise in banking regulation. Kathryn Reimann is a regulatory advisor to Hummingbird and different establishments and has greater than 25 years of expertise main compliance capabilities at public firms, most just lately because the chief compliance officer for Citibank and the Citi World Shopper Financial institution.

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