Pub. 10 2015-2016 Issue 2

www.nebankers.org 22 Extraordinary Service for Extraordinary Members. Consumer Compliance Applies to Commercial Credit? Darlia Fogarty, Director of Compliance, Compliance Alliance W HEN YOUR COMP L I ANCE officer informs you that the loan officers who only work with the bank’s commercial portfolio should be trained on consumer compliance, it is not a joke. At Compli- ance Alliance, we hear complaints from loan officers on a daily basis about the compliance officer insisting they at- tend consumer compliance trainings. Whether that education includes live programs, webinars, or online training, we agree. While the group of regulations— consumer compliance or consumer protections—and even the name of the new government agency, the Consumer Financial Protection Bureau (CFPB), understandably would lead a reason- able person to believe these regulations would apply only to consumers, some of these regulations extend their protection to commercial customers. As a result, it is imperative for commercial loan officers not only to know the regula- tions exist, but also to understand how the regulations apply to commercial customers. So which regulations extend pro- tection to commercial products and services? Banks determine the credit needs of their communities. The Community Reinvestment Act (CRA), which is Regu- lation BB, requires that determination to be strategically planned and executed. CRA requires large banks to collect and report their CRA small business and small farm lending activities. Even if your bank doesn’t currently meet the asset-size threshold, you may want to familiarize and train your bank’s staff in regard to the reporting requirements. In this day and age of mergers and acquisi- tions, it is certainly within the realm of possibility that your bank could move from a small or intermediate small in- stitution, for CRA purposes, to a large institution rather quickly. Unlike CRA, which is applied based on the asset size of your financial institu- tion, the Equal Credit Opportunity Act (ECOA/Regulation B) affects your bank whatever the asset size. This regulation prohibits the bank from discriminating in any aspect of a credit transaction/ loan. The statute provides that its pur- pose is to require financial institutions and other firms engaged in the exten- sion of credit to “make credit equally available to all creditworthy customers without regard to sex or marital status.” Moreover, the statute makes it unlawful for “any creditor to discriminate against any applicant with respect to any aspect of a credit transaction (1) on the basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract); (2) because all or part of the applicant’s income derives from any public as- sistance program; or (3) because the applicant has in good faith exercised any right under the Consumer Credit Protection Act.” These protections apply to all consumers as well as commercial transactions. An important part of the ECOA is the notice of action taken, commonly referred to an adverse action notice. This requirement is a little different for commercial customers versus consum- ers, but it still applies. In addition, the record retention for commercial cus- tomers, under the ECOA requirements, also differs from the consumer customer requirement. Commercial credit is to be retained 12 months after the customer is made aware of the action taken; for consumers, it’s 25 months. The dif- ferences between commercial versus consumer are good reasons to require your commercial officers to have train- ing for ECOA. Another regulation that applies across business lines is the Flood Di- saster Protection Act (FDPA/Regulation H). The FDPA mandates that banks cannot make, increase, extend, or renew a loan secured by a building or mobile home located in a special flood hazard area unless it is covered by flood insur- ance for the term of the loan. What de- termines if flood insurance is required? The type and location of the collateral are what counts; however, the purpose of the loan (whether it is consumer or commercial) does not matter at all. Are there nuances in the requirements? Ab- solutely. Training should be mandatory for all loan staff. Another consumer protection regu- lation not typically considered when discussing training requirements for most commercial lenders is the Ser- vicemembers Civil Relief Act (SCRA).