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Turnover at the top will bring more focus on efficiency and reg burden. Left to right: Jelena McWilliams nominated to head FDIC; Jerome Powell, new Fed chairman; Mick Mulvaney, CFPB acting director; and Joseph Otting, new Comptroller of the Currency. analyses, redlining analyses, and reverse redlining analyses. Finally, what about HMDA data integrity? The increase in the number of fields magnifies the regulatory risk inherent in HMDA loan application register submissions. As a result, the effort required to collect and report accurate data also must increase. This is especially true for HELOC data and any other new/modified fields, which have not been subject to mandatory HMDA reporting and rigorous data quality testing in the past.
Fair-servicing scrutiny Expect the focus on loan servicing to continue. On the mortgage front, regulators will continue to expect servicers to maintain robust systems, enabling fair and timely evaluation of, and assistance to, distressed borrowers. Concerns highlighted by CFPB in 2017 may receive continued attention, including reasonable due diligence in getting borrowers to complete loss mitigation applications; avoiding overly broad waivers of rights clauses in loss mitigation programs; and ensuring that the mortgage periodic statements contain all the required data and disclosures. The loan servicing focus that began with mortgages has already spread to student loans. In 2017, CFPB continued examination, reporting, and enforcement activity related to servicing student loans, especially private ones. Going forward, lenders should expect the fair-servicing principles established for mortgages and student loans to be applied more broadly. In addition to mortgages and student loans, servicing issues highlighted by 30
the CFPB in 2017 affected several other products, including: • Auto loans, including repossessions. • Credit cards, including payment processing, collections, and error resolutions. • Deposit accounts, including overdraft protection products, Regulation E error resolution, and the “freezing” of transaction accounts. Financial institutions’ compliance monitoring and testing should include servicing, especially of significant and higher-risk products. In addition, Mulvaney indicated that the bureau’s focus on debt collection will continue. One recent focus involves borrower communications during collections. CFPB identified several concerns, which include: • Communicating with unauthorized persons regarding debts. • Contacting borrowers at inconvenient times or places. • Misstating the effect of the debt payment s a nd t he debt set t lement s on borrower credit scores. The bureau also noted instances of creditors attempting to collect from authorized users and making unauthorized ACH debits for accounts in collection. Lenders and debt collectors should evaluate their processes and controls, including call monitoring, to ensure that debt collection efforts are fair and appropriate. Further, lenders using third-party debt collectors should ensure that the outside provider adheres to the requirements for fair and responsible collection activities. Lenders are responsible for the actions that service providers take on their behalf.
Risk management technology
Especially for larger institutions and t ho se eng a g i ng i n f i nt e c h- en able d lending, changes in risk management technology will have a significant impact. Big data brings big challenges from a fair-lending standpoint. As the number and complexity of credit and pricing models and segmentations increase, so does the need for more robust fairlending statistical analysis of the risk inherent in the development and use of such models. Additiona lly, reg ulator y ex pec tations for statistical analysis appear to be increasing. As a result, banks should evaluate the quality of their fair-lending models; ensure appropriate validation of credit risk and pricing models that includes consideration of fair-lending concerns; and include fair-lending models within the coverage of their model risk management programs. A lthough some things may change under the Trump administration, banks should expect a continued focus on robust compliance management systems, including fair lending, data integrity, regulatory reporting, loan servicing, and third-party oversight. Having a strong control framework will help manage risks in spite of shifting regulator y expectations and requirements. Institutions should examine their CMS for adequacy in light of their product mix, risk appetite, and the changing regulatory environment.
Rebecca (Lynn) Woosley, CRCM, is engagement director, and Brenda Baylor, CRCM, is a director with Treliant.