On the Compliance Radar: HMDA Changes and Increased UDAAP Scrutiny
By: Rosemary Ondeck, CFSA, MBA
Principal, Internal Audit
There are many regulations that apply to the financial services industry, but in early 2017 there are two areas of compliance that require closer attention from bank and credit union leaders: Home Mortgage Disclosure Act (HMDA) and Unfair, Deceptive or Abusive Acts or Practices (UDAAP). Neither are new to the regulatory scene, but 2017 is the year to prepare for upcoming changes to HMDA and anticipate continued increased scrutiny under UDAAP.
HDMA Changes Ahead
Enacted by Congress in 1975, HMDA requires financial institutions to detail and disclose information related to mortgage lending. HMDA has long been a focus of Fair Lending compliance examinations, but a new push by federal regulators to improve HMDA data will lead to fresh scrutiny in the coming years.
HMDA compliance is important for several reasons, not the least of which to prevent discriminatory or unfair lending practices related to mortgages. As such, it is critical that banks, credit unions and financial institutions report data in an accurate and comprehensive manner. In late 2015, federal regulators announced changes to HMDA reporting that would increase reporting frequency and expand the amount and level of detail of collected data, including:
- An increase in data fields from 26 to 52, with new or modified definitions for some fields
- The availability of a new electronic submission tool
- The expansion of HMDA to apply to home equity lines of credit and loans originated and purchased
- An increase in reporting frequency depending on number of loans (quarterly reporting required for 60,000 loans or more)
Most of these changes take effect starting in January 2018, so financial institutions should use 2017 to prepare for these compliance changes. Here are some action items to help prepare for the 2018 changes:
- Monitor loan pipelines to ensure applications taken in 2017, with final action dates in 2018, are properly reported in 2018 with the new fields.
- Be aware of definition changes taking place in 2018. For example, a home improvement loan must be secured by a dwelling to be HMDA reportable.
- 2017 HMDA data, as well as subsequent data, must be reported to the CFPB. It is important to review internal processes, not only for collection of data, but for its submission. Work with vendors to establish a readiness plan and ensure data will be submitted, in its new format, to the CFPB.
UDAAP: Broad Umbrella for Infractions
Regulatory examiners have stepped up their scrutiny of the actions and practices of financial institutions, hitting many with penalties or fines for infractions under UDAAP. With a new year upon us, it is important for bank or credit union leaders to remain vigilant against potential UDAAP violations, particularly as it relates to customer complaint tracking and response.
One of the four pillars of a healthy compliance culture is a complaint management system. Having a system in place to track and report complaints effectively and efficiently can help identify potential UDAAP violations to remedy in a proactive fashion before examiners flag them during review. Financial institutions with a CMS in place or considering implementation should recognize the need for ongoing personnel engagement in the process of tracking, managing and reporting complaints, and keep in mind that complaints from third party vendors should also be included in the system.
Financial institutions with questions about how to prepare for upcoming HMDA reporting changes or seeking assistance to strengthen UDAAP compliance should contact the RKL Risk compliance team.