While the regulatory landscape in Washington, D.C., is evolving — as pauses and adjustments occur with changes in administration — consumer compliance should continue to be a part of every organization’s culture. As banks look to protect the consumer, here are five areas to consider for 2025:
- Compliance Management System (CMS): A complete CMS is crucial for both managing and mitigating risks related to consumer compliance areas. Part of the CMS is oversight by the compliance officer and management. When management presents an idea or way to increase business within the mortgage division, don’t be the “no” person — instead, we must be the “how to” person whenever possible. It is so important for compliance personnel to be part of the processes and help find solutions to mitigate risk. The compliance program should include not only policies and procedures but also training, monitoring and consumer complaint response. Training should be job-specific and include the board. Monitoring should be based on the risk of the institution (internal or external). Complaint response is critical to identify potential risk areas or systematic compliance problems.
- Resources: Community banks continue to not only recruit but retain experienced compliance resources. Management and the board must determine the risk level of the institution and allocate appropriate resources for compliance-related functions. A compliance officer should have sufficient authority and independence to:
- Cross departmental lines.
- Have access to all areas of the institution’s operations.
- Effect corrective action.
- Fair Lending: The appearance of discrimination comes from concerning lending patterns, exceptions, lender discretion, lack of monitoring, etc. A few questions to consider for fair lending compliance and successful examinations include:
- Are policies and procedures effective and followed?
- Is lender discretion controlled and tracked?
- Are exceptions becoming the normal practice, or is one group benefiting over another? Does the board or audit committee understand the number of exceptions allowed or patterns by loan officers or branch locations?
- Do we understand what the data shows, including lending areas, disparities or pricing differences?
- Is the monitoring process effective to look at the data and recognize differences and determine if there are additional risks?
- Ability to Repay (ATR): The ATR/Qualified Mortgage (QM) is not new, but recent findings in audits and exams have identified some weaknesses in the documentation of certain items within the ATR rules. These are specifically in the documentation of income and verification of employment. As a rule matures in bank processes, banks tend to relax controls. Maintaining strong ATR/QM controls will help prevent issues within your CMS, violations and penalties. With noncompliance with ATR rules, there also is a liability for the bank regarding the consumer. Under the rule, there is a three-year statute of limitations on ATR claims brought as affirmative cases. In addition, after the statute of limitations on affirmative ATR claims expires, consumers can bring ATR claims as setoff/recoupment claims in a defense to foreclosure. If the file is ever taken to court, the importance of the documentation is critical for the bank to defend any challenges. Management should continue to reiterate the importance of documenting the amounts used for income calculations, as well as documenting the verification of the current employment.
- Real Estate Settlement Procedures Act (RESPA) Section 8: One notable segment of increased protection activism is Section 8 of RESPA, which protects against inflationary pressures caused by kickbacks and referral payments in the residential real estate market.
The current market pressures spawned by declining loan volumes create a strong tendency for loan officers to be “creative” or “innovative” with settlement service providers, including real estate agents — this leads to compliance risk and the need to determine whether lenders are potentially violating provisions of these sticky and often murky anti-kickback provisions. As compliance professionals, we need to be on heightened alert for lender relationships with realtors or other settlement service providers.
Start with three basic questions to be alerted to situations that will most certainly require attention:
- Is there a referral of a settlement service business?
- Is there anything of value being exchanged between a settlement service provider and the bank?
- If yes on both, what are the benefits received by both parties, and can the value of the service be measured?
Shaun Harms, CRCM/CBAP, is a principal in the regulatory compliance consulting/financial services national practice at Forvis Mazars. His experience is within the regulatory compliance area with a focus on community and middle-market financial institutions. He has more than 20 years of consulting experience and has worked with more than 200 banks on compliance and Bank Secrecy Act (BSA) programs. He is a featured speaker at events across the country on consumer compliance and BSA-related rules.
