Vol. XXXIV, No. 25 FinCEN Beneficial Ownership Reporting RuleI. Introduction The U.S Treasury’s Financial Crimes Enforcement Network (FinCEN) has issued a final rule implementing the beneficial ownership information (BOI) reporting provisions established by the Corporate Transparency Act. The Act and its Implementing regulation are designed to inhibit the ability of illicit actors to use shell companies to launder their money or hide assets. The rule establishes: a) who must file a BOI report; b) what information must be reported; and c) when a report is due. The final rule also requires reporting companies to file reports with FinCEN that identify two categories of individuals: (1) the beneficial owners of the entity; (2) the company applicants of the entity. Two additional rules, covering access to the database and an update to the existing Consumer Due Diligence rule will be issued by FinCEN in the future. The additional rules will (1) establish rules for who may access BOI, for what purposes, and what safeguards will be required to ensure that the information is secured and protected; and (2) revise the FinCEN customer due diligence rule following the promulgation of the BOI reporting final rule. II. Reporting Companies The Federal rule creates two types of reporting companies: domestic and foreign.
III. Beneficial Owner A beneficial owner is defined as an individual who, directly or indirectly, either (1) exercises substantial control over a reporting company, or (2) owns or controls at least 25 percent of the ownership interests of a reporting company.
IV. Company Applicants The rule does not require reporting companies that exist or are registered at the time of the effective date of the rule to identify and report on their company applicants. A company applicant is defined as:
Reporting companies formed for registered after the effective date of the rule do not need to update the company applicant information. V. Beneficial Ownership Information The final rule requires a reporting company to identify itself and report four pieces of information about each of its beneficial owners:
Reporting companies will be required to report as follows:
FinCEN Identifier: If an individual provides their four pieces of information to FinCEN directly, the individual may obtain a "FinCEN identifier," which then can be provided to FinCEN on a BOI report in lieu of the required information about the individual. VI. Effective Date The effective date of the final rule is January 1, 2024. Companies created or registered before January 1, 2024, have one year (until January 1, 2025) to file their initial reports. Reporting companies created or registered after January 1, 2024, will have 30 days after receiving notice of their creation or registration to file their initial reports. In addition to their initial reports, reporting companies will have 30 days to report changes to the information in their previously filed reports and must correct inaccurate information in previously filed reports. The foregoing Compliance Update is for informational purposes only and does not constitute legal advice. As a reminder, the NBA general counsel is the attorney for the Nebraska Bankers Association, not its member banks. The general counsel is available to assist members with finding resources to help answer their questions. However, for specific legal advice about specific situations, members must consult and retain their own attorney.
Vol. XXXIV, No. 24 Regulation Z - Consumer Credit Transactions Threshold AmountThe Board of Governors of the Federal Reserve System and the Consumer Financial Protection Bureau have issued final rules pertaining to the implementation of the Consumer Protection Act (CPA). Effective January 1, 2023, the threshold for exempt consumer credit transactions increased from $61,000 to $66,400. The foregoing Compliance Update is for informational purposes only, and does not constitute legal advice. As a reminder, the NBA general counsel is the attorney for the Nebraska Bankers Association, not its member banks. The general counsel is available to assist members with finding resources to help answer their questions. However, for specific legal advice about specific situations, members must consult and retain their own attorney.
Vol. XXXIV, No. 23 Special Appraisal Requirements for Higher-Priced Mortgage LoansThe Board of Governors of the Federal Reserve System has announced the annual adjustment of the dollar amount used to determine whether a small loan is exempt from the special appraisal requirements that apply to higher-priced mortgage loans. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 amended the Truth in Lending Act to require creditors to obtain a written appraisal based on a physical visit of the home's interior before making a higher-priced mortgage loan. The rules implementing this requirement contain an exemption for loans of $25,000 or less and also provide that the exemption threshold will be adjusted annually based on the annual percentage change reflected in the Consumer Price Index. The exemption threshold will increase from $28,500 to $31,000, effective January 1, 2023, based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers as of June 1, 2022. The foregoing Compliance Update is for informational purposes only, and does not constitute legal advice. As a reminder, the NBA general counsel is the attorney for the Nebraska Bankers Association, not its member banks. The general counsel is available to assist members with finding resources to help answer their questions. However, for specific legal advice about specific situations, members must consult and retain their own attorney.
Vol. XXXIV, No. 22 Regulation II - Prohibition on Network ExclusivityThe Federal Reserve Board of Governors (FRB) has adopted a final rule that amends Regulation II to specify that the requirement that each debit card transaction must be able to be processed on at least two unaffiliated payment card networks applies to card-not-present transactions, and to clarify the requirement that debit card issuers ensure that at least two unaffiliated networks have been enabled to process a debit card transaction. The final rule becomes effective on July 1, 2023. As required by the Dodd-Frank Act, a provision of Regulation II known as the "prohibition on network exclusivity" prohibits debit card issuers and payment card networks from restricting the number of networks on which a debit card transaction may be processed to fewer than two unaffiliated networks. This prohibition aims to promote competition among networks by ensuring that merchants have an opportunity to choose between at least two unaffiliated networks when routing debit card transactions, each of which does not, by rule or policy, restrict the operation of the network to a limited geographic area, specific merchant or particular type of merchant or transaction. When the Board issued Regulation II in 2011, the market had not yet developed solutions to broadly support multiple networks for card-not-present debit card transactions, such as online purchases. In the ensuing decade, most networks have introduced the technical capabilities to process card-not-present debit card transactions. In those cases where only one network is enabled for card-not-present transactions, merchants do not have an alternative network option that might offer lower fees or better fraud-prevention capabilities. The final rule underscores that issuers should provide routing choice for card-not-present debit card transactions. The final rule specifies that card-not-present transactions are a particular type of debit card transaction for which issuers must enable at least two unaffiliated networks. The final rule also adds language to emphasize that Regulation II does not require an issuer to ensure that two unaffiliated networks will actually be available to the merchant to process every transaction. Under the final rule, an issuer must configure each of its debit cards so that card-not-present transactions performed with those cards can be processed on at least two unaffiliated networks. As a practical matter, an issuer will first need to determine whether card-not-present transactions performed with its debit cards can already be processed on at least two unaffiliated networks. If the issuer is not already compliant with the final rule, then the issuer will need to adjust its debit card processing arrangements to meet the final rule's requirements. The final rule includes certain changes that make it easier for issuers to determine whether they are already compliant with the prohibition on network exclusivity. Specifically, the final rule retains the approach in current Regulation II that allows issuers to rely on network rules or policies in determining whether the networks enabled by an issuer may be used to satisfy the prohibition on network exclusivity. The foregoing Compliance Update is for informational purposes only, and does not constitute legal advice. As a reminder, the NBA general counsel is the attorney for the Nebraska Bankers Association, not its member banks. The general counsel is available to assist members with finding resources to help answer their questions. However, for specific legal advice about specific situations, members must consult and retain their own attorney.
Vol. XXXIV, No. 21 Cyber Incident ReportingI. Introduction The Financial Stability Board (FSB) has issued a set of recommendations for standardizing cyber incident reporting (CIR) among financial institutions (FI) and regulators. Cyber incidents are rapidly growing in frequency and sophistication. At the same time, the cyber threat landscape is expanding amid digital transformation, increased dependencies on third-party service providers and geopolitical tensions. Growing interconnectedness of the financial system increases the likelihood of a cyber incident at one financial institution or an incident at one of its third-party service providers having spill-over effects across borders and sectors. II. Recommendations The FSB report sets out the following recommendations to address impediments to achieving greater convergence in CIR. The recommendations aim to promote convergence among CIR frameworks, while recognizing that a one-size-fits-all approach is not feasible or preferable. Financial authorities and FIs can choose to adopt these recommendations as appropriate and relevant, consistent with their legal and regulatory framework.
The foregoing Compliance Update is for informational purposes only, and does not constitute legal advice. As a reminder, the NBA general counsel is the attorney for the Nebraska Bankers Association, not its member banks. The general counsel is available to assist members with finding resources to help answer their questions. However, for specific legal advice about specific situations, members must consult and retain their own attorney.
Vol. XXXIV, No. 20 Court Ruling Overturns HMDA Reporting Threshold for Small EntitiesA federal judge recently moved to vacate Consumer Finance Protection Bureau (CFPB) regulations that expanded the number of small-volume lenders deemed to be exempt from Home Mortgage Disclosure Act (HMDA) reporting requirements. The court ruling partially invalidated legal exemptions that allowed small mortgage lenders to avoid reporting closed-end loan data under HMDA. HMDA rules provide that mortgage lenders must report HMDA data when their loan volume meets specific thresholds in the two preceding calendar years. Regulation C provides two separate thresholds, one for reporting closed-end mortgage loans and the other for reporting open-end lines of credit. Lenders that do not meet either threshold in a given year are not required to collect and report any HMDA data. In 2015, the CFPB set the closed-end threshold at 25 closed-end mortgage loans in each of the two preceding calendar years, and the open-end threshold at 100 open-end lines of credit in each of the two preceding calendar years. In 2020, the CFPB increased the threshold of exempt institutions to 100 closed-end mortgage loans in each of the two preceding calendar years. The 2020 rule also set the permanent threshold for open-end lines of credit at 200 open-end lines in each of the two preceding calendar years, starting in calendar year 2022. The recent court decision invalidated the closed-end loan exemption expansions but did not impact the threshold of 200 open-end lines of credit originated in each of the prior two years. The court vacated and remanded the closed-end mortgage loan reporting threshold to the CFPB for further action. The CFPB is expected to issue instructions regarding how to comply with the HMDA requirements to institutions affected by the ruling in the near future. It is recommended that banks expecting to exceed the closed-end threshold of 25 closed-end mortgage loans in each of the two preceding calendar years (as established in 2015) begin to make HMDA reporting preparations, as it is likely that reporting obligations will resume for the 2023 calendar year. The foregoing Compliance Update is for informational purposes only, and does not constitute legal advice. As a reminder, the NBA general counsel is the attorney for the Nebraska Bankers Association, not its member banks. The general counsel is available to assist members with finding resources to help answer their questions. However, for specific legal advice about specific situations, members must consult and retain their own attorney.
Vol. XXXIV, No. 19 FDIC Guidance - Multiple NSF Fees Charged for Re-PresentmentThe Federal Deposit Insurance Corporation (FDIC) has released guidance on the practice of charging multiple non-sufficient fund fees for transactions presented multiple times against insufficient funds in a customer’s account. The guidance indicates that the FDIC will recognize and institution’s proactive efforts to self-identify and correct violations. I. Background Many financial institutions charge NSF fees when checks or Automated Clearinghouse (ACH) transactions are presented for payment but cannot be covered by the balance in a customer's transaction account. After being declined, merchants may subsequently resubmit the transaction for payment. Some financial institutions charge additional NSF fees for the same transaction when a merchant re-presents a check or ACH transaction on more than one occasion after the initial unpaid transaction was declined. In these situations, there is an elevated risk of violations of law and harm to consumers. The FDIC has identified violations of law when financial institutions charged multiple NSF fees for the re-presentment of unpaid transactions because disclosures did not fully or clearly describe the financial institution's re-presentment practice, including not explaining that the same unpaid transaction might result in multiple NSF fees if an item was presented more than once. Practices involving the charging of multiple NSF fees arising from the same unpaid transaction results in heightened risks of violations of Section 5 of the Federal Trade Commission (FTC) Act, which prohibits unfair or deceptive acts or practices (UDAP). Third parties, including core processors, often play significant roles in processing payments, identifying and tracking re-presented items, and providing systems that determine when NSF fees are assessed. Such third-party arrangements may also present risks if not properly managed. There may also be heightened litigation risk. Numerous financial institutions, including some FDIC-supervised institutions, have faced class action lawsuits alleging breach of contract and other claims because of the failure to adequately disclose re-presentment NSF fee practices in their account disclosures. Financial institutions are encouraged to review their practices and disclosures regarding the charging of NSF fees for re-presented transactions. The FDIC has observed some risk-mitigation practices financial institutions implemented to reduce the risk of consumer harm and potential violations. The FDIC will take appropriate action to address consumer harm and violations of law when exercising its supervisory and enforcement responsibilities regarding re-presentment NSF fee practices. II. Potential Risks Arising from Multiple Re-Presentment NSF Fees Consumer Compliance Risk: Practices involving the charging of multiple NSF fees arising from the same unpaid transaction results in heightened risks of violations of Section 5 of the Federal Trade Commission (FTC) Act, which prohibits unfair or deceptive acts or practices (UDAP). While specific facts and circumstances ultimately determine whether a practice violates a law or regulation, the failure to disclose material information to customers about re-presentment and fee practices has the potential to mislead reasonable customers, and there are situations that may also present risk of unfairness if the customer is unable to avoid fees related to re-presented transactions.
Third-Party Risk: Third parties, including core processors, often play significant roles in processing payments, identifying and tracking re-presented items, and providing systems that determine when NSF fees are assessed. Such third-party arrangements may present risks if not properly managed. Institutions are expected to maintain adequate oversight of third-party activities and appropriate quality control over products and services provided through third-party arrangements. In addition, institutions are responsible for identifying and controlling risks arising from third-party relationships to the same extent as if the third-party activity was handled within the institution. Institutions are encouraged to review and understand the risks presented from their core processing system settings related to multiple NSF fees, as well as understand the capabilities of their core processing system(s), such as identifying and tracking re-presented items and maintaining data on such transactions. Litigation Risk: Multiple NSF fee practices may result in heightened litigation risk. Numerous financial institutions, including some FDIC-supervised institutions, have faced class action lawsuits alleging breach of contract and other claims because of the failure to adequately disclose re-presentment NSF fee practices in their account disclosures. Some of these cases have resulted in substantial settlements, including customer restitution and legal fees. III. Risk Mitigation Practices Institutions are encouraged to review their practices and disclosures regarding the charging of NSF fees for re-presented transactions. The FDIC has observed various risk-mitigating activities that financial institutions have taken to reduce the potential risk of consumer harm and avoid potential violations of law regarding multiple re-presentment NSF fee practices. These include:
If institutions self-identify re-presentment NSF fee issues, the FDIC expects supervised financial institutions to:
IV. FDIC's Supervisory Approach When exercising supervisory and enforcement responsibilities regarding multiple re-presentment NSF fee practices, the FDIC will take appropriate action to address consumer harm and violations of law. The FDIC’s supervisory response will focus on identifying re-presentment related issues and ensuring correction of deficiencies and remediation to harmed customers. In reviewing compliance management systems, the FDIC recognizes an institution’s proactive efforts to self-identify and correct violations. Examiners will generally not cite UDAP violations that have been self-identified and fully corrected prior to the start of a consumer compliance examination. In addition, in determining the scope of restitution, the FDIC will consider an institution’s record keeping practices and any challenges an institution may have with retrieving, reviewing, and analyzing re-presentment data, on a case-by-case basis, when evaluating the time period institutions utilized for customer remediation. In recent examinations, the FDIC has identified instances where institutions have been unable to reasonably access accurate ACH data for re-presented transactions beyond two years. In these cases, the FDIC has accepted a two-year lookback period for restitution. The FDIC expects supervised institutions to promptly address this issue. Institutions with challenges readily accessing accurate ACH data that self-correct this issue and provide restitution to harmed customers, as appropriate, for transactions occurring two years before the date of this Financial Institution Letter will generally be considered as having made full corrective action. Failing to provide restitution for harmed customers when data on re-presentments is reasonably available will not be considered full corrective action. If examiners identify violations of law due to re-presentment NSF fee practices that have not been self-identified and fully corrected prior to a consumer compliance examination, the FDIC will evaluate appropriate supervisory or enforced actions, including civil money penalties and restitution, where appropriate. V. Conclusion Based on the foregoing guidance, banks should review existing disclosures with respect to its multiple re-presentment NSF fees practices to determine if clarifications to their disclosures are in order. In addition, the bank should determine if it should consider adopting some of the “risk mitigation practices” outlined above and to the extent possible, conduct a “look back” to identify any customers who may be entitled to restitution for transactions occurring two years before the date of the FDIC Supervisory Guidance. The foregoing Compliance Update is for informational purposes only, and does not constitute legal advice. As a reminder, the NBA general counsel is the attorney for the Nebraska Bankers Association, not its member banks. The general counsel is available to assist members with finding resources to help answer their questions. However, for specific legal advice about specific situations, members must consult and retain their own attorney.
Vol. XXXIV, No. 18 BSA-AML-Risk-Based Approach to Assessing Customer Relationships and Conducting Customer Due DiligenceThe Federal Banking Agencies have issued a joint statement to remind banks of the risk-based approach to assessing customer relationships and conducting customer due diligence (CDD). The statement does not alter existing Bank Secrecy Act/Anti-Money Laundering (BSA/AML) legal or regulatory requirements, nor does it establish new supervisory expectations. The Agencies recognize that it is important for customers engaged in lawful activities to have access to financial services. Therefore, the Agencies are reinforcing a longstanding position that no customer type presents a single level of uniform risk or a particular risk profile related to money laundering, terrorist financing, or other illicit financial activity. Banks must apply a risk-based approach to CDD, including when developing the risk profiles of their customers. More specifically, banks must adopt appropriate risk-based procedures for conducting ongoing CDD that, among other things, enables banks to: (i) understand the nature and purpose of customer relationships for the purpose of developing a customer risk profile, and (ii) conduct ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information. Customer relationships present varying levels of money laundering, terrorist financing and other illicit financial activity risks. The potential risk to a bank depends on the presence or absence of numerous factors, including facts and circumstances specific to the customer relationship. Not all customers of a particular type automatically represent a uniformly higher risk of money laundering, terrorist financing or other illicit financial activity. Banks that operate in compliance with applicable BSA/AML legal and regulatory requirements, and effectively manage and mitigate risks related tot he unique characteristics of customer relationships, are neither prohibited nor discouraged from providing banking services to customers of any specific class or type. As a general matter, the Agencies do not direct banks to open, close or maintain specific accounts. The Agencies continue to encourage banks to manage customer relationships and mitigate risks based on customer relationships, rather than decline to provide banking services to entire categories of customers. In addition, the Agencies recognize that banks choose whether to enter into or maintain business relationships based on their business objectives and other relevant factors, such as the products and services sought by the customer, the geographic locations where the customer will conduct or transact business, and banks' ability to manage risks effectivley. The statement addresses the Agencies' perspective on assessing customer relationships as well as CDD requirements. It applies to all customer types referenced in the Federal Financial Institutions Examination Council (FFIEC) Bank Secrecy Act/Anti-Money-Laundering Examination Manual and also applies to any customer type not specifically addressed in the FFIEC BSA/AML Examination Manual. Full-Text PDF The foregoing Compliance Update is for informational purposes only, and does not constitute legal advice. As a reminder, the NBA general counsel is the attorney for the Nebraska Bankers Association, not its member banks. The general counsel is available to assist members with finding resources to help answer their questions. However, for specific legal advice about specific situations, members must consult and retain their own attorney.
Vol. XXXIV, No. 17 NSF Fees for Re-Presentment - Disclosure ClarificationI. Introduction The NBA has recently received numerous inquiries regarding increased scrutiny of overdraft practices by regulatory agencies, including multiple fees imposed on re-presented items. Banks have been criticized by their regulators for not accurately disclosing their fees and processes, and in some cases have been ordered to submit "Restitution Plans" to reimburse customers for overdraft fees. Independent litigation and class action lawsuits have challenged banks' overdraft practices. II. Re-Presented Items When an ACH transaction or check is presented against the customer's account without sufficient funds to cover the item presented, banks typically charge a non-sufficient funds (NSF) fee. The fees are commonly disclosed in the account agreement as being charged on a "per item" or "per transaction" basis. It is not uncommon for a merchant, after an ACH transaction or check is declined, to re-present the item. NACHA rules allow two re-presentments following the initial return of an ACH transaction. While re-presentment checks are not limited, it is not unusual for a check to be re-presented multiple times. It is standard practice for banks to charge NSF fees for each re-presentment of these items. Until recently, this practice has not been questioned and federal regulations contain no express prohibition against charging NSF fees for re-presentments. In scrutinizing banks' practices, the regulators have focused on whether account agreements have clearly indicated that a separate NSF fee may be charged for each re-presented item. If not, the bank may be alleged to be in breach of contract, the language could be alleged to constitute a deceptive practice, or the practice of charging multiple NSF fees for the same transaction may be considered an inherently unfair practice. III. Operational Concerns Member banks have expressed significant operational concerns with the regulatory interpretations. The manner in which a transaction is coded may effectively prevent a bank from being able to identify if a re-presented item has been previously presented for payment. In addition, most banks are not equipped to conduct an automated search to identify re-presented checks, dictating a manual search to identify transactions for which multiple NSF fees may have been charged for re-presentments. IV. Updating Disclosures In response to regulatory criticism, banks may be reviewing their disclosures to ensure that they clearly explain how and when overdraft fees may be imposed. If banks elect to update their disclosures, it is recommended that any such changes be disclosed to existing customers as a CLARIFICATION. The bank does NOT want to provide the updated language as a CHANGE IN TERMS. Casting the revisions as a change in terms could imply that the existing disclosures do not authorize the bank to charge multiple NSF fees on re-presented items and could result in the regulators requiring reimbursement for overdraft fees previously charged to customers. Banks electing to update their disclosures may provide the clarification through a notice on their periodic statements sent to customers. Because this would not constitute a change in terms to existing accounts, there is no waiting period involved. The foregoing Compliance Update is for informational purposes only, and does not constitute legal advice. As a reminder, the NBA general counsel is the attorney for the Nebraska Bankers Association, not its member banks. The general counsel is available to assist members with finding resources to help answer their questions. However, for specific legal advice about specific situations, members must consult and retain their own attorney.
Vol. XXXIV, No. 16 Elder Financial Exploitation - FinCEN AdvisoryI. IntroductionThe Financial Crimes Enforcement Network (FinCEN) has issued an advisory to alert financial institutions to the rising trend of elder financial exploitation (EFE) targeting older adults and to highlight new EFE typologies and red flags since FinCEN issued the first EFE advisory in 2011. For purposes of the advisory, EFE is defined as the illegal or improper use of an older adult’s funds, property, or assets. Additional information regarding trends and typologies of EFE and associated payments, as well as case studies on elder theft and elder scams are contained within the recent FinCEN advisory which may be viewed here on pages 3-8. II. Behavioral and Financial Red Flags A. Behavioral Red Flags Victims of EFE may have limited and irregular contact with others. For some, their only outside contact may involve visiting or communicating with their local financial institution, including at the bank branch, check-cashing counter, or MSB. Therefore, it is critical for customer-facing staff to identify and consider the behavioral red flags when conducting transactions involving their older customers, particularly suspicious behavior that also involves the financial red flags highlighted below. Such information should be incorporated into SAR filings and reported to law enforcement as appropriate. Financial institutions are reminded that behavioral red flags of EFE and the names of staff who witnessed them should be included in the SAR narrative to assist future law enforcement investigations. Behavioral red flags of EFE may include:
B. Financial Red Flags Identification of financial red flags of EFE and the associated payments are critical to detecting, preventing, and reporting suspicious activity potentially indicative of EFE. In addition to the financial red flags set out in DOJ and CFPB notices, financial red flags of EFE may include:
III. Suspicious Activity Reporting The FinCEN advisory also contains a refresher on the suspicious activity reporting and other relevant BSA reporting requirements which may be viewed here on pages 11-15. Full-Text PDF The foregoing Compliance Update is for informational purposes only, and does not constitute legal advice. As a reminder, the NBA general counsel is the attorney for the Nebraska Bankers Association, not its member banks. The general counsel is available to assist members with finding resources to help answer their questions. However, for specific legal advice about specific situations, members must consult and retain their own attorney.
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