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Inactive Financial Institution Letters 

Common Compliance Violations

FIL-87-97
September 2, 1997

 

TO: CHIEF EXECUTIVE OFFICER AND COMPLIANCE OFFICER
SUBJECT: Consumer Protection and Fair Lending Compliance Violations Most Often Cited by FDIC Examiners in 1996

As part of its review and analysis of compliance examinations conducted by the FDIC, the Division of Compliance and Consumer Affairs (DCA) has identified the most commonly cited violations of consumer and fair lending laws and regulations by FDIC-supervised institutions in 1996. A listing is attached. Also attached is a table showing the number of banks examined for compliance by the FDIC during 1996 and the number of banks cited for violations. The FDIC believes that sharing this information with its supervised institutions will enable them to improve in specific areas in the future.

Many of the violations cited can be avoided, corrected or minimized with an effective compliance program established by an institution's Board of Directors. Elements of an effective compliance program include:

  • written policies and procedures;
  • monitoring procedures for periodic proactive review, including the institution's lending policies;
  • education/training of appropriate personnel;
  • nondiscriminatory lending criteria;
  • loan application procedures;
  • periodic review of standard forms;
  • a compliance audit program; and
  • procedures to handle consumer complaints.

To implement an effective compliance program, the Board of Directors should designate a compliance officer with responsibility for:

  • reviewing policies and procedures for compliance;
  • training all employees in consumer laws and regulations;
  • coordinating consumer complaints; and
  • providing periodic reports to the Board regarding the effectiveness of the program and recommendations for any improvements.

For further information on establishing an effective compliance program, please refer to Appendix B of the FDIC's Compliance Examination Manual. To obtain a copy of the manual, please write to:

Federal Deposit Insurance Corporation
Department Number 0667
Washington, D.C. 20073

You may also access the manual over the Internet at the following address:

http://www.fdic.gov/regulations/compliance/handbook/index.html

The FDIC's regional offices can assist your institution with its compliance efforts. For information about whom to contact, please refer to the attached regional office listing.


Carmen J. Sullivan
Director

Attachments -- available at the FDIC web site: /banknews

Distribution: FDIC-Supervised Banks (Commercial and Savings)


Violations of Consumer Laws and Regulations Most Often Cited During Compliance Examinations Conducted by the FDIC in 1996

Truth in Lending Act - Regulation Z

-- Section 226.19(a)(1). Requires the timely issuance of Truth in Lending disclosures for residential mortgage transactions. (Within 3 business days of acceptance of a consumer's application for a residential mortgage.) A violation of this section was cited in 26% of the institutions examined.

-- Section 226.18(e). Requires the accurate disclosure to the consumer of the Annual Percentage Rate for transactions involving closed-end credit. A violations of this section was cited in 16% of the institutions examined.

-- Section 226.18(m). Requires that the creditor disclose that it has or will acquire a security interest in identified property in transactions involving closed-end credit. A violation of this section was cited in 14% of the institutions examined.

Real Estate Settlement Procedures Act (RESPA) - Regulation X

-- Section 3500.21(b). Requires timely delivery of the mortgage servicing disclosure to a consumer when an application for a residential mortgage transaction is taken. A violation of this section was cited in 46% of the institutions examined. (Note: This regulatory provision was substantially modified by the Economic Growth and Regulatory Paperwork Reduction Act of 1996. The effect of the changes will be to require fewer disclosures to the consumer and HUD has published proposed changes to the regulation in the Federal Register Vol. 62, No.90, May 9, 1997. See FIL-56-97: Inactive Financial Institution Letters: dated June 2, 1997.)

-- Section 3500.7(a). Requires the timely deliverance of the Good Faith Estimate to all applicants for a RESPA related transaction. A violation of this section was cited in 43% of the institutions examined.

-- Section 3500.8(b). Requires the use of the Uniform Settlement Statement when prescribed by the regulation. A violation of this section was cited in 25% of the institutions examined.

Equal Credit Opportunity Act - Regulation B

-- Section 202.5(d)(5). Prohibits requesting the race, color, religion or national origin of an applicant in a credit transaction except where it is required for monitoring purposes. A violation of this section was cited in 17% of the institutions examined.

-- Section 202.9(a)(1). Requires notice to the applicant of action taken on credit applications within prescribed time frames. A violation of this section was cited in 16% of the institutions examined.

-- Section 202.5(d)(3). Prohibits requesting the sex of an applicant for a credit transaction except as required for monitoring purposes. A violation of this section was cited in 14% of the institutions examined.

Fair Housing Act - FDIC Regulation Part 338

-- Part 338.7(a)(1)(i). Requires banks with assets of less than $10 million or with no offices located within a Metropolitan Statistical Area (MSA) to request certain data from their customers on applications for home loans and to retain that data in their files. A violation of this section was cited in 25% of the institutions examined. (Note: The FDIC recently revised Part 338 and the effect of the change will be to no longer require smaller institutions to request and retain certain data. Please refer to FIL-67-97: Inactive Financial Institution Letters: dated July 14, 1997, for more information.)

-- Part 338.3(a). Requires using the "Equal Housing Lender" logotype or slogan in advertisements. A violation of this section was cited in 13% of the institutions examined.

Truth in Savings Act - Regulation DD

-- Section 230.4(b). Requires disclosure of specified information about deposit accounts. A violation of this section was cited in 23% of the institutions examined.

-- Section 230.5(b)(1). Requires that notices and disclosures be provided to customers within prescribed time frames prior to maturity for accounts with maturities longer than one year. A violation of this section was cited in 15% of institutions examined.

-- Section 230.8(c). Requires additional disclosures in advertisements when an Annual Percentage Yield (APY) is stated. A violation of this section was cited in 15% of institutions examined.

Flood Disaster Protection Act - FDIC Regulation Part 339

-- Part 339.5. Requires that sufficient records be maintained to show the method used by the bank to determine if property securing the loan is located in a special flood hazard area. A violation of this section was cited in 31% of the institutions examined. (Note: The FDIC revised Part 339 effective as of October 1, 1996. The changes should enable institutions to comply more easily with the record keeping requirements. Please refer to FIL-71-96, dated September 9, 1996 for more information.)

Expedited Funds Availability Act - Regulation CC

-- Section 229.10(c)(1)(vii). Requires an institution to make funds available by the next day in an amount that is the lesser of $100 or the aggregate of deposits not subject to next day rules. A violation of this section was cited in 21% of the institutions examined.

-- Section 229.13(g). Requires an institution to provide a written notice to the customer with specified information when an exception hold will be placed on an account. A violation of this section was cited in 16% of the institutions examined.

Home Mortgage Disclosure Act (HMDA) - Regulation C

-- Section 203.4(a). Requires that an institution collect specified data and enter that information on a Loan Application Register. A violation of this section was cited in 30% of the institutions examined that were subject to HMDA. The same section also requires that the information collected must be entered on the LAR within 30 days following the end of the quarter in which final disposition was made on the application. A violation of this portion of the section was cited in 30% of the institutions examined that were subject to HMDA.

Fair Credit Reporting Act

-- Section 615(a). Requires that an institution taking adverse action on a credit application because of information contained in a consumer report provide notice to the applicant that information contained in a credit report contributed to the action taken. A violation of this portion of the Act was cited in 15% of the institutions examined. Another provision of this section requires that if the denial of credit was based in whole or in part on a consumer report, the name, address and telephone number of the credit reporting agency must be disclosed to the consumer. A violation of this provision of the Act was cited in 15% of the institutions examined.

Electronic Funds Transfer Act - Regulation E

-- Section 205.11(c). Requires an institution to investigate allegations of error in an electronic transfer of funds within 10 business days after notice by the consumer that an error may have occurred. A violation of this section was cited in 7% of the institutions examined.

Last Updated 09/17/2009 communications@fdic.gov