Compliance Update with Amy K

CFPB issues response on decreased HMDA closed-end reporting threshold; recommendations to ensure servicemembers benefit from SCRA; and writing effective SAR narratives. 

HMDA – Closed End Threshold Change
Earlier this week, the Consumer Financial Protection Bureau (CFPB) recently issued a blog post in response to a recent court decision that decreased HMDA closed-end reporting threshold and how it will be handling enforcement.

“On September 23, 2022, the United States District Court for the District of Columbia issued an order vacating the 2020 Home Mortgage Disclosure Act (HMDA) Final Rule as to the loan volume reporting threshold for closed-end mortgage loans. The decision means that the threshold for reporting data on closed-end mortgage loans is now 25 loans in each of the two preceding calendar years, which is the threshold established by the 2015 HMDA Final Rule, rather than the 100 loan threshold set by the 2020 HMDA Final Rule.

The CFPB recognizes that financial institutions affected by this change may need time to implement or adjust policies, procedures, systems, and operations to come into compliance with their reporting obligations. In these limited circumstances, in allocating the CFPB’s enforcement and supervisory resources, the CFPB does not view action regarding these institutions’ HMDA data as a priority. Thus, the CFPB does not intend to initiate enforcement actions or cite HMDA violations for failures to report closed-end mortgage loan data collected in 2022, 2021, or 2020 for institutions subject to the CFPB’s enforcement or supervisory jurisdiction that meet Regulation C’s other coverage requirements and originated at least 25 closed-end mortgage loans in each of the two preceding calendar years but fewer than 100 closed-end mortgage loans in either or both of the two preceding calendar years.”

At the time of this writing, the CFPB had yet to update any of its compliance resources relating to HMDA to reflect the 25 closed-end loan threshold or how it plans to re-implement the 25 closed-end loan threshold going forward.
 
Servicemembers Civil Relief Act
The CFPB also released a report that revealed Reserve and National Guard members called to active duty are paying an extra $9 million in interest every year because they are not always receiving the benefit of their right to rate reductions under the Servicemembers Civil Relief Act (SCRA).

In the CFPB’s press release that accompanied the report, the CFPB makes the following recommendations to ensure that reserve component servicemembers benefit from their right to an interest rate reduction:

• Creditors apply SCRA interest rate reductions for all accounts held at an institution if a servicemember invokes their rights for a single account: If a servicemember requests an interest rate reduction for one account, the creditor could apply that request to every account held at the respective institution.
• Creditors automatically apply SCRA rights: Beginning in December 2014, the Department of Education required federal student loan servicers to check the Defense Manpower Data Center SCRA website monthly to identify borrowers eligible for the SCRA interest rate cap. When automatic interest rate reductions were applied for federal student loans, utilization increased dramatically. The low utilization rates identified in this report suggest that automatic application of benefits should be pursued where possible, and public and private sector resources should be aligned to increase adoption of an automatic application process.
• Development of comprehensive and periodic indicators of SCRA interest rate reduction utilization: Better and more frequent information on SCRA rate reduction utilization would help inform and evaluate future efforts to expand servicemembers’ financial rights and protections.

 
Remember – the SCRA applies to active-duty members of the Army, Marine Corps, Navy, Air Force, Space Force, and Coast Guard. It also applies to reservists when serving in a Title 10 status or members of the National Guard serving under a Title 32 502(f) status for more than 30 consecutive days for the purpose of responding to a national emergency declared by the President and supported by federal funds. The law also applies to active duty commissioned officers of the Public Health Service or the National Oceanic and Atmospheric Administration.
For more information on SCRA, including summary, checklist, FAQs and model policy, be sure to review the “Servicemember Civil Relief Act” section of InfoSight – a member benefit for all DakCU affiliated credit unions.
 
SAR Narrative – Clear and Concise
Last week I discussed Organized Retail Crime following my attendance at the CUNA/NASCUS BSA school (again - highly recommend for any BSA compliance officers – if you want to talk more about the school just give me a call). Another topic that was discussed several times from different speakers was the importance of writing an effective narrative when filing the Suspicious Activity Report (SAR). The narrative section of the SAR is critical to understanding the nature and circumstances of the suspicious activity.

As a reminder, credit unions are required to file a SAR in specific situations, and in other situations it is voluntary.

Credit unions are required by federal regulations to file a SAR with respect to:

• Criminal violations involving insider abuse in any amount.
• Criminal violations aggregating $5,000 or more when a suspect can be identified.
• Criminal violations aggregating $25,000 or more regardless of a potential suspect.
• Transactions conducted or attempted by, at, or through the bank (or an affiliate) and aggregating $5,000 or more, if the bank or affiliate knows, suspects, or has reason to suspect that the transaction: May involve potential money laundering or other illegal activity (e.g., terrorism financing); Is designed to evade the BSA or its implementing regulations; Has no business or apparent lawful purpose or is not the type of transaction that the particular customer would normally be expected to engage in, and the bank knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction.

Credit unions are required to file SARs that are complete, thorough, and timely – including providing all known subject information on the SAR. The FFIEC BSA/AML Examination manual states, “The importance of the accuracy of this information cannot be overstated. Inaccurate information on the SAR, or an incomplete or disorganized narrative, may make further analysis difficult, if not impossible.”

A thorough and complete narrative may make the difference in determining whether the described conduct and its possible criminal nature are clearly understood by law enforcement. Therefore, the SAR narrative must be complete, thoroughly describe the extent and nature of the suspicious activity, and included within the SAR.
The SAR narrative needs to identify the who, what, when, where, why and how – be clear, complete and concise.

Also, do not assume the reader is familiar with internal terminology or acronyms used in your credit union. Be sure to include a description of the activity to describe what was unusual or irregular that caused suspicion. Provide any information you believe is necessary to better enable investigators to understand the reported suspicious activity.
The SAR filing instructions includes a checklist for preparing the narrative – be sure to review this checklist to ensure you are effectively providing the information to law enforcement investigators:

• If filers have additional information pertaining to items in Parts I through IV this information should be recorded in the narrative and referenced to the item number.
• If this report is a corrected or amended report, complete the report in its entirety with whatever corrections or amendments were required. Describe the corrections or amendments at the beginning of the narrative.
• If this report is a continuing report, describe the circumstances surrounding the suspicious activity for the 90-day period encompassing the report. Include information from prior FinCEN SAR narratives only when it is necessary for an understanding of the nature and circumstances of the suspicious activity. Never include the entire narratives of the prior FinCEN SARs.
• If any item in the report was insufficient for recording all item data held by the filer, or if an item’s instructions require entry of additional data or explanation in the narrative, record the additional data referenced by item number in the narrative.
• Information provided in other sections of the FinCEN SAR need not be repeated in the narrative unless necessary to provide a clear and complete description of the suspicious activity.
• Describe the conduct or transaction(s) that caused suspicion. If appropriate, this description should be chronological when the activity involves multiple instances or encompasses more than one day.
• Explain whether any transaction(s) involved were completed or only attempted.
• Explain who benefited and how they benefited, financially or otherwise, from the activity.
• Describe all supporting documentation and retain the documentation for five years. DO NOT include supporting documentation with the FinCEN SAR.
• If the FinCEN SAR is jointly-filed, name all joint filers and describe the nature of supporting document held by the joint filers. Provide the contact office name and telephone number for each joint filer.
• Describe and retain any evidence of cover-up or evidence of an attempt to deceive federal or state examiners or others.
• Describe and retain any admission or explanation of the activity or transaction(s) provided by the subject(s), witness(s), or other person(s), including to whom and when it was given.
• Indicate where the suspicious activity took place, e.g. branch, cage, gaming pit, agent location, etc.
• Indicate whether the suspicious activity is an isolated incident or related to other activity.
• Indicate whether any U.S. or foreign currency or other negotiable instruments were involved. If foreign currency or other foreign instruments, provide the foreign amount, currency name, and country of origin.
• Indicate if there is any litigation related to the activity by specifying the name of the litigation and court where the action is pending.
• Describe the nature of losses and recoveries related to the suspicious activity, including aggregated losses and recoveries in continuing activity.
• Identify the names of financial institutions associated with account numbers when the financial institution TINs were unknown.
• If the subject is a foreign national provide all available information on the subject’s passport(s), visa(s), and other identification. Include identifying data such as issuing date, country, document numbers, issuing authority, and nationality.
• If the suspicious activity involves transfers of funds to or from a foreign country or currency exchanges involving foreign currencies, identify the foreign currency, country of issue, and the source or destination of the funds.
• If a subject involved in the suspicious activity has an insider relationship with a financial institution, describe the subject’s position with the financial institution and how that position related to the suspicious activity.
• Provide information on the victims of the suspicious activity only when it is necessary for a complete understanding of the activity. DO NOT record victim information in a Part I Subject Information record.
• Provide information about the financial institution’s business policies and practices only if it is necessary for a complete understanding of the suspicious activity. DO NOT include legal disclaimers in the narrative.
• Do not include tabular data in a FinCEN SAR narrative. Such data should be reported in an appropriate comma separated values attachment.

If the SAR contains information provided by another financial institution under the 314(b) Voluntary Information Sharing Program, include in the narrative the statement “This SAR contains 314(b) data.”

Filers can include with a FinCEN SAR an attachment containing tabular data (such as transaction data) that provides additional suspicious activity information not suitable for inclusion in the narrative. This file must be an MS Excel-compatible comma separated value (CSV) file with a maximum size of 1 megabyte. Including an attachment is not a substitution for a complete narrative.

Remember – clearly explain WHY the activity is suspicious in the beginning. Start the narrative with a strong introduction – date of suspicious activity, total amount, red flags, why, why, why the activity is unusual/suspicious, and identify subjects. Grab the reader’s attention!

As always, DakCU members may contact Amy Kleinschmit with any compliance related questions.