“The Four D's of the CFPB: Discrimination, Deception, Debt Traps, and Dead Ends, Part II”

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January 27, 2014

IBAT TechMecca 2014 Set for February 3-4 The Independent Bankers Association of Texas (IBAT) has announced the premier technology and expo for financial institutions, TechMecca 2014, is set for February 3-4 at the Renaissance Arboretum Hotel in Austin, TX. IBAT said this year’s show focuses on the CORE areas of concern for community financial institutions. The areas include compliance, operations, risk management, and enterprise efficiency.

The TechMecca 2014 agenda includes featured speakers at the opening and closing general sessions. On Monday, February 3, Richard Bowen will offer remarks titled “Prosecuting Wall Street–a Business Ethics Session from Citigroup Whistle-blower.” On Tuesday, crowd-favorite and technologist Lee Wetherington will offer remarks titled “Knowing the Future Backwards:

Knowing the Next Now.” The conference offers concurrent sessions on Monday and Tuesday mornings and Tuesday afternoon, an expo hall with over fifty technology exhibitors, numerous networking opportunities, and an interactive general session on Tuesday morning.

Since any decision to implement new technology solutions at a community financial institution involves a number of individuals and departments to sign off, IBAT is committed to making TechMecca 2014 a cost-effective event. IBAT is offering a “three for the cost of one” special on registration. That’s three attendees for the low cost of one registration.

For more information on the TechMecca 2014 conference agenda, including the optional Super Bowl Party on Sunday, February 2, or to register, visit: www.ibat.org/techmecca Q

Cervantes and Kennedy Promoted to EVP in LA Resource Bank, Covington, LA, recently announced two promotions to its executive management team. At a recent board of directors meeting, the promotions of Julie C. Cervantes and Lynn Kennedy were approved.

The news was reported on www.

Cervantes nola.com.

Cervantes was promoted to executive vice president and CFO. She is a CPA and has served with the bank since 2009. Prior to joining the bank, she served in controller and other accounting positions for

about 20 years. She earned a BS degree in accounting from the University of New Orleans.

Kennedy is now an executive vice president and chief operations officer. Previously, she served as senior vice president, branches and retail operaKennedy tions.

Resource Bank, established in 1998, is a $506 millionasset community bank with nine offices in the Northshore in St. Tammany and Washington parishes and one office in Metairie, Jefferson Parish Q

Volume 144, No. 4

Wilcox Is EVP/Mortgage, OmniAmerican Fort Worth OmniAmerican Bank, Fort Worth, TX, has announced the appointment of David Wilcox to EVP and mortgage services manager, according to Tim Carter, president/ CEO. Wilcox will oversee the mortgage lending group, processing and secondary Wilcox marketing activities with responsibilities for planning, developing, and implementing mortgage lending strategies.

With more than 25 years of mortgage industry experience prior to joining OmniAmerican, Wilcox served as senior mortgage loan officer for Legacy Texas Bank in Fort Worth, where he was one of the top producers in loan volume and number of loans, and earlier in leadership roles at Cendera Funding and Group Capital.

OmniAmerican Bank manages assets of approximately $1.4 billion and operates 14 branches in the Dallas/ Fort Worth Metroplex Q Please route this issue:

In This Issue...

The Four D’s of the Consumer Financial Protection Bureau, Part II Feature..............................................3 Newswatch: Newest TX Charter..5 Charter Activity..............................9 Classified.......................................10

Published weekly on Mondays except fifth Mondays

FEATURE CONSUMER LENDING The Four D’s of the CFPB: Discrimination, Deception, Debt Traps, and Dead Ends, Part II By Debbie Ray, Director Risk Advisory Services www.weaver.com

Debbie Ray

Part I of this article in the January 20, 2013, issue discussed discrimination and deception within the context of the CFPB. Part II focuses on “Debt Traps and Dead Ends.”

and implement a plan to improve compliance with consumer financial protection laws, including the Military Lending Act. Dead Ends Perhaps the best examples of consumer dead ends are the 2012 settlements with the country’s largest loan servicers.

The volume of consumer mortgages that went into default in response to the 2008 economic downturn was unprecedented. Institutions were un-

prepared for the onslaught of defaults and resulting foreclosures. To cope, institutions began “robo-signing” or automatically signing documents.

Consumers were often confused and were passed around within an institution when they inquired about their loans. While the government was prominently discussing federal relief programs, loan servicers were not set up to handle the requests, and as a result consumers became frustrated.

Customer complaints sky-rocketed (continued on Page 8)

Debt Traps Regulators have recently devoted considerable focus to the issue of overdrafts, including 2010 FDIC guidance outlining best practices for addressing the overdrafts issue. The agencies clearly regard overdrafts as extensions of credit subject to fair lending and UDAAP scrutiny. Compliance is not limited to Truth-in-Savings provisions and, more recently, Electronic Funds Transfer Act technical requirements. Institutions should monitor overdraft volumes, frequencies, fees and charges, and actively help consumers better manage their accounts.

The CFPB is also looking at “payday” lenders and debt collection agencies. With a payday loan, a small dollar short-term loan can include significant fees and egregious APRs. The adverse consequences an institution can face in a debt trap investigation involving such loans and subsequent collection efforts are rather substantial.

In November 2013, the CFPB ordered a payday lender to offer $8 million to consumers after the company had already voluntarily paid roughly $6 million to military borrowers and victims of their practices.

The lender was also fined $5 million and ordered to drop judgments

January 27, 2014 BANKERS DIGEST Page 3

FEATURE Four D’s: (continued from Page 3)

and such complaints are “red flags” for regulators when examining an institution. As procedures eventually evolved, many institutions focused on adhering to state foreclosure laws, forgetting that fair lending and UDAAP provisions play prominent roles in loss mitigation and workout scenarios, too. Fair and consistent treatment, availability of options, and customer experience are all areas an institution must consider when servicing loans.

Debt collection agencies (DCA)

are the latest CFPB target. Much like mortgage servicers, DCAs have historically not received the same level of scrutiny as financial institutions, but they also need to comply with all relevant laws and regulations, including the Fair Debt Collection Practices Act, Military Lending Act, UDAAP, fair lending provisions, and state protection laws.

Practices may need to be implemented or revamped to consider the consumer’s perspective, with the understanding that resulting complaints

will likely ensure a targeted review. If an institution outsources its debt collections, its third party relationships will require diligent oversight.

The CFPB is not only an active participant, but is becoming the leader in the regulatory landscape with respect to many of these consumer protection laws and enforcement. The scope of its oversight is larger than the other bank regulatory agencies and is everexpanding.

In December 2013, the CFPB settled with PNC Financial Services Group Inc., Pittsburgh, PA, for the previous actions of an entity purchased

by PNC. It is imperative in the active environment of bank sales, mergers, and acquisitions that due diligence includes a look at possible discrimination concerns, not simply pending litigation.

Keeping these four D’s in mind should help boards and senior management make better decisions about existing and proposed products and services Q About the author: Debbie Ray, CRCM, CRP, AMLP, is a director in the risk advisory services at Weaver, the largest independent accounting firm based in the Southwest with offices throughout TX. Contact her at 972.448.9229 or Debbie.Ray@Weaver.com.

DEPOSIT INSURANCE FUND

FDIC Projects Cost of Bank Failures to be $10 Billion The FDIC has said it expects bank failures from 2012 through 2016 will cost the Deposit Insurance Fund (DIF) $10 billion.

Bank failures in the US have been declining since they peaked in 2010 in the wake of the financial crisis and the Great Recession. In 2007, only three banks failed; in 2008, 25; after the financial meltdown in 2009, 140; in 2010, 157; in 2011, 92; in 2012, 51; and in 2013, 24.

From 2008 - 2011, bank failures cost the the FDIC’s DIF an estimated $88 billion. The fund fell into the red in 2009 and turned positive in the second quarter of 2011. The DIF had a $40.8 billion balance as of September 30, 2013 Q Page 8 BANKERS DIGEST January 27, 2014