The pace of the compliance changes is dizzying. Importantly, the changes being made are not to minor regulatory requirements. The changes impact regulatory stalwarts like Regulation Z, RESPA, HMDA, Unfair and Deceptive Acts and Practices and Truth in Savings.
Further complicating matters is that in some cases, multiple final rules and compliance dates for the same regulation. We also have brand new regulatory requirements, such as the Identity Theft Prevention Program rule. Finally, fair lending is a wildcard-bankers are extremely worried about increased examination scrutiny-which should make credit unions pay attention. Let's look more closely at some of these changes.
The Federal Reserve issued two Regulation Z final rule changes. The first impacts home equity and mortgage-related loans with compliance mandatory Oct. 1, 2009. The rule establishes a new category of loans called "higher priced mortgage loans." For these higher priced loans, new restrictions apply related to the member's ability to repay, prepayment penalties and escrow accounts.
While these changes do impact subprime lenders, additional changes will impact all real estate lenders. All home loans are subject to restrictions on certain lending and servicing practices, and there are numerous changes related to real state loan advertising.
The second Regulation Z final rule impacts credit cards with compliance mandatory July 1, 2010. You will have to change your Schumer Box, which contains the terms and conditions of the credit card account. Your credit card applications and solicitations will have to disclose new penalty pricing and fee information. In addition, you will have to make significant changes to your account opening disclosures and periodic statements.
Perhaps the most significant upcoming change is to RESPA. Compliance is mandatory for most of the changes Jan. 1, 2010. The RESPA changes were very controversial, with HUD receiving over 12,000 comments letters. Although HUD received substantial pressure to not issue a final rule, it believed that the mortgage market problems were so serious that it had no choice but to take immediate action.
The RESPA changes completely overhaul the Good Faith Estimate and HUD-1 forms. The changes are intended to save consumers money and improve comparison shopping between different lenders. The benefits to the consumer come at a price. Your credit union now will be providing a much longer and comprehensive GFE and it will be less an estimate and more like a contract. Under certain circumstances, if actual closing costs are higher than your GFE estimates, you would have to refund the difference.
Although we are already beyond the mandatory compliance date for the identity theft Red Flag requirements, your compliance efforts are far from over. Your Red Flag program should be continually updated. Identity theft is still on the rise and the new requirements to combat it will take on greater importance.
We have heard some regulators say that fair lending is going to receive the same scrutiny as BSA. Pay attention to fair lending and make sure you have your bases covered.
Because the number of regulatory changes feels so overwhelming and because you may not quite know how or where to begin, putting these compliance challenges on the back burner may feel like the easiest or simplest solution-but resist that temptation.
At the end of the day, do not forget-complying
with consumer protection regulations is good mem-
John Zasada is managing director of the national practices economic unit at RSM McGladrey Inc. He can be reached at 218-790-1086 or firstname.lastname@example.org