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Annual Report 2013

Consumer and Community Affairs

The mission of the Division of Consumer and Community Affairs (DCCA) is to ensure that the voices and concerns of consumers and communities are represented at the central bank of the United States. DCCA has primary responsibility for carrying out the Board of Governor's consumer financial protection and community development programs. It also conducts consumer-focused supervision, research, and policy analysis, as well as implements statutory requirements and facilitates community development. These activities promote a fair and transparent consumer financial services market, including for traditionally underserved households and neighborhoods.

Throughout 2013, the division engaged in numerous consumer and community-related functions and policy activities in the following areas:

  • Consumer-focused supervision and examinations. The division provided leadership for the Reserve Bank consumer compliance supervision and examination programs in state member banks and bank holding companies through policy development, examiner training, supervision oversight, fair lending, Unfair or Deceptive Acts or Practices (UDAP) and flood enforcement, analysis of bank and bank holding company applications in regard to consumer protection, and processing consumer complaints.
  • Consumer research and emerging-issues and policy analysis. The division analyzed emerging issues in consumer financial services policies and practices in order to understand their implications for the economic and supervisory policies that are core to the central bank's functions, as well as to gain insight into consumer decisionmaking around financial services.
  • Community development activities. The division continued to promote fair and informed access to financial markets for all consumers, particularly the needs of underserved populations, by engaging lenders, government officials, and community leaders. Throughout the year, DCCA convened programs to share information and research on effective community development policies and strategies.
  • Consumer laws and regulations. The division continued to administer the Board's regulatory responsibilities with respect to certain entities and specific statutory provisions of the consumer financial services and fair lending laws. DCCA drafted and consulted with other agencies on regulations and official interpretations, as well as issued regulatory interpretations and compliance guidance for the industry, the Reserve Banks, other federal agencies, and congressional staff.

Supervision and Examinations

DCCA develops and supports supervisory policy and examination procedures for consumer protection laws and regulations, as well as the Community Reinvestment Act (CRA), as part of its supervision of the organizations for which it has authority, including holding companies, state member banks, and foreign banking organizations. The division also administers the Federal Reserve System's risk-focused program for assessing consumer compliance risk at the largest bank and financial holding companies in the System, with division staff ensuring that consumer compliance risk is effectively integrated into the consolidated supervision oversight of the holding company. The division oversees the efforts of the 12 Reserve Banks to ensure that compliance with consumer protection laws and regulations is fully evaluated and fairly enforced. Division staff provides guidance and expertise to the Reserve Banks on consumer protection laws and regulations, bank and bank holding company application analysis and processing, examination and enforcement techniques and policy matters, examiner training, and emerging issues. Staff review Reserve Bank supervisory reports, examination work products, and consumer complaint analyses and responses. Finally, staff members participate in interagency activities that promote consistency in examination principles, standards, and processes.

Examinations are one of the Federal Reserve's methods of enforcing compliance with consumer protection laws and assessing the adequacy of consumer compliance risk-management systems within regulated entities. During 2013, the Reserve Banks completed 296 consumer compliance examinations of state member banks and 1 examination of a foreign banking organization.1

Bank Holding Company Consolidated Supervision Program

During 2013, staff in the Bank Holding Company (BHC) Consolidated Supervision Program had responsibility for reviewing more than 120 bank and financial holding companies to ensure consumer compliance risk was appropriately incorporated into the consolidated risk assessment for the organization. BHC Consolidated Supervision Program staff participated jointly with staff from the Board's Division of Banking Supervision and Regulation on numerous projects related to implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), including supervisory assessment fees, consolidated supervision, and thrift holding company integration. Also, as part of the consolidated supervision of BHCs, staff continued to monitor compliance with the provisions of the consent orders that were implemented in 2011 and 2012 at the 6 mortgage servicers and 10 BHCs for which the Federal Reserve has supervisory authority. Staff's oversight is designed to determine if the servicers and BHCs have corrected the noted deficiencies; that future abuses in the loan modification and foreclosure process are prevented; and that borrowers are compensated for financial injury they suffered because of errors, misrepresentations, or other deficiencies in the foreclosure process.

In January, the Federal Reserve issued guidance entitled "Supplemental Policy Statement on the Internal Audit Function and its Outsourcing,"2 which addresses the characteristics, governance, and operational effectiveness of a financial institution's internal audit function. The guidance reflects changes over the past several years in banking regulations related to auditor independence and limitations placed on the external auditor. The Federal Reserve encourages financial institutions to enhance their internal audit practices and to adopt professional audit standards.

In April, the Federal Reserve issued guidance entitled "Extension of the Use of Indicative Ratings for Savings and Loan Holding Companies."3 When the Federal Reserve assumed responsibility for supervision of savings and loan holding companies (SLHC) in July 2011, the Federal Reserve set forth the SLHC supervisory approach for the first supervisory cycle in SR letter 11-11/CA letter 11-5, "Supervision of Savings and Loan Holding Companies (SLHCs)." Under that approach, the Federal Reserve issues an indicative rating to each SLHC to indicate how the SLHC would be rated under the RFI rating system.4 The current guidance clarifies that until finalization of a proposed rating system for SLHCs, the Federal Reserve will continue to assign indicative ratings to SLHCs.

In December, the Federal Reserve issued guidance entitled "Guidance on Managing Outsourcing Risk," which addresses the characteristics, governance, and operational effectiveness of a financial institution's service provider risk-management program for outsourced activities.5 The guidance highlights the potential risks arising from the use of service providers and describes the elements of an appropriate service provider risk-management program.

Mortgage Servicing and Foreclosure: Remediating Borrowers through the Payment Agreement

In January 2013, the Payment Agreement replaced the Independent Foreclosure Review requirement of the enforcement actions issued by federal banking regulators that included case-by-case file reviews and instead provides for cash payments to borrowers.6 It resulted from an agreement reached among 13 separate mortgage servicers and the Federal Reserve Board and the Office of the Comptroller of the Currency (OCC). The participating servicers agreed to pay an estimated $3.6 billion to 4.2 million borrowers whose primary residence was in a foreclosure process in 2009 or 2010. The Payment Agreement also included an additional $5.7 billion dollars in other foreclosure prevention assistance, such as loan modifications and forgiveness of deficiency judgments. In late February, the Board and the OCC released amendments that memorialized the agreements in principle announced in January. For the participating servicers, fulfillment of the agreement will satisfy the foreclosure review requirements of the enforcement actions issued by the Board, the OCC, and the Office of Thrift Supervision in April and September 2011 and April 2012.

A paying agent, Rust Consulting, Inc. (Rust Consulting), was retained to administer payments to borrowers on behalf of the participating servicers. Beginning in April 2013, a letter with an enclosed check was sent to borrowers who had a foreclosure action initiated, pending, or completed in 2009 or 2010 with any of the participating servicers.7 For checks that were returned undeliverable, Rust Consulting, at the direction of the regulators, is attempting to locate more current address information for the borrowers and will send a new check to the updated address. As of December 31, 2013, more than $3 billion has been distributed through 3.4 million checks. Receiving a payment under the agreement will not prevent borrowers from taking any action they may wish to pursue related to their foreclosure. Servicers are not permitted to ask borrowers to sign a waiver of any legal claims they may have against their servicer in connection with receiving payment.

In summer 2013, two additional mortgage servicers, GMAC Mortgage and EverBank, also reached agreements with the Board and the OCC that ended the Independent Foreclosure Review for those servicers. The amended consent orders that memorialized the agreements for GMAC Mortgage and EverBank were released in July and October 2013, respectively. In December, Rust Consulting mailed postcards to more than 232,000 borrowers whose mortgage loans were serviced by GMAC Mortgage, notifying them that they should expect to receive a payment, or a letter describing additional information needed to process their payment, by the end of January 2014.8

The Payment Agreement also required servicers to undertake well-structured loss-mitigation efforts focused on foreclosure prevention, with preference given to activities designed to keep borrowers in their homes through affordable, sustainable, and meaningful home-preservation actions within two years from the date the agreement in principle was reached. Under the Payment Agreement, servicers must not disfavor a specific geography within or among states, nor disfavor low- and/or moderate-income borrowers, and should not discriminate against any protected class. Servicers may fulfill their obligations through three specific consumer-relief activities set forth in the National Mortgage Settlement, including first-lien loan modifications, second-lien loan modifications, and short sales or deeds-in-lieu of foreclosure. Servicers were given the option, subject to non-objection from their regulator, to meet their foreclosure prevention assistance requirements by paying additional cash into the qualified settlement funds to be used for direct payments to consumers or by providing cash or other resource commitments to borrower counseling or education.

In addition to the foreclosure review requirements, the enforcement actions required servicers to submit acceptable written plans to address various mortgage loan servicing and foreclosure processing deficiencies. The Payment Agreement did not eliminate the other existing provisions of the April 2011 enforcement actions, which remain in full force and effect. Since the enforcement actions were issued, the banking organizations have been implementing the action plans that include enhanced controls, and improving systems and processes. Federal Reserve supervisory teams continue to monitor and evaluate the servicers' progress on implementing the action plans to address unsafe and unsound mortgage servicing and foreclosure practices as required by the enforcement actions.

Supervisory Matters

Risk-Focused Supervision

In November 2013, the Board revised its Community Bank Risk-Focused Consumer Compliance Supervision Program for state member banks with consolidated assets of $10 billion or less and their subsidiaries.9 The new program became effective on January 1, 2014, and is designed to promote strong compliance risk-management practices and consumer protection at state member community banks. Under the updated program, consumer compliance examiners will base the examination intensity more explicitly on the individual financial institution's risk profile, including its consumer compliance culture and how effectively it identifies and manages consumer compliance risk. The new program is intended to enhance the efficacy of the Board's supervision program and reduce regulatory burden on many community banking organizations.

The program provides an enhanced risk-assessment process based on current information about a financial institution's products and services, as well as related legal and regulatory factors, the environment in which the institution operates, and its compliance risk-management practices. Based on the level of residual risk identified in the risk-assessment process, a customized work program will be developed that includes examination activities consistent with the size, complexity, and risk profile of the institution's products, services, and business lines.

The program also incorporates ongoing supervision, typically a supervisory contact close to the mid-cycle between consumer compliance examinations. However, in some cases when the institution's risk profile is high or it changes materially as a result of the addition of more complex or higher-risk strategies, more frequent contacts may be appropriate. Ongoing supervision is intended to identify and, if necessary, address significant changes in the institution's compliance risk-management program or in the level of consumer compliance risk present and ensure that supervisory information is up to date.

The program is complemented by a revised examination frequency policy, which will promote effective supervision through deployment of examiner resources commensurate with an institution's size, compliance rating, and CRA rating. The upper asset size threshold for the frequency category for smaller financial institutions was raised from $250 million to $350 million, and a new tier was added to the examination frequency schedule for banks with assets between $350 million and $1 billion. The examination frequency for these institutions is longer because these institutions tend to be less complex and pose more-limited compliance risk than larger institutions. The examination frequency schedule for financial institutions with assets over $1 billion and institutions with less than satisfactory compliance or CRA ratings remains the same. The Board expects that the new examination frequency policy will reduce burden on many community banks.

Flood Insurance

The National Flood Insurance Act imposes certain requirements on loans secured by buildings or mobile homes located in, or to be located in, areas determined to have special flood hazards. Under the Federal Reserve's Regulation H, which implements the act, state member banks are generally prohibited from making, extending, increasing, or renewing any such loan unless the building or mobile home, as well as any personal property securing the loan, are covered by flood insurance for the term of the loan. The law requires the Board and other federal financial institution regulatory agencies to impose civil money penalties when they find a pattern or practice of violations of the regulation. The civil money penalties are payable to the Federal Emergency Management Agency (FEMA) for deposit into the National Flood Mitigation Fund.

In 2012, the Biggert-Waters Flood Insurance Reform Act (Biggert-Waters Act) was signed into law, with certain provisions impacting regulations and guidance that the federal financial institution supervisory agencies have provided to lenders to assist them in complying with federal flood insurance statutes.

In March 2013, the Board and four other federal agencies responsible for implementing the Biggert-Waters Act issued guidance to inform financial institutions about these provisions.10 The guidance identified and described several provisions of the Biggert-Waters Act that will become effective when the agencies publish implementing regulations. The guidance further discussed two lender-related provisions of the Biggert-Waters Act addressing force placement and civil money penalties, which became effective immediately upon enactment. Among other things, the act raised the civil money penalty cap when a pattern or practice of flood violations exists. Specifically, the cap was raised from $385 per violation to $2,000 per violation. In addition, the overall calendar year cap on penalties was removed.

In 2013, the Federal Reserve issued eight formal consent orders and assessed $26,720 in civil money penalties against state member banks to address violations of the flood regulations. These statutorily mandated penalties were forwarded to the National Flood Mitigation Fund held by the Department of the Treasury for the benefit of FEMA.

Community Reinvestment Act

The Community Reinvestment Act (CRA) requires that the Federal Reserve and other federal banking and thrift agencies encourage financial institutions to help meet the credit needs of the local communities in which they do business, consistent with safe and sound operations. To carry out this mandate, the Federal Reserve

  • examines state member banks to assess their compliance with the CRA;
  • analyzes applications for mergers and acquisitions by state member banks' and bank holding companies' CRA performance in context with other supervisory information; and
  • disseminates information about community development techniques to bankers and the public through Community Development offices at the Reserve Banks.

The Federal Reserve assesses and rates the CRA performance of state member banks in the course of examinations conducted by staff at the 12 Reserve Banks. During the 2013 reporting period, the Reserve Banks completed 248 CRA examinations of state member banks. Of those banks examined, 31 were rated "Outstanding," 212 were rated "Satisfactory," 4 were rated "Needs to Improve," and 1 was rated "Substantial Non-Compliance."

In November, the Board, OCC, and FDIC issued final revisions to their Interagency Questions and Answers Regarding Community Reinvestment.11 The document provides additional guidance to financial institutions and the public on the agencies' CRA regulations.

The revisions focus primarily on community development. Community development activities are considered as part of the CRA performance tests for large institutions, intermediate small institutions, and wholesale and limited purpose institutions. Small institutions may use community development activity to receive consideration toward an outstanding CRA rating. Among other things, the revisions

  • clarify how the agencies consider community development activities that benefit a broader statewide or regional area that includes an institution's assessment area;
  • provide guidance related to CRA consideration of, and documentation associated with, investments in nationwide funds;
  • clarify the consideration of certain community development services, such as service on a community development organization's board of directors;
  • address the treatment of loans or investments to organizations that, in turn, invest those funds and use only a portion of the income from their investment to support a community development purpose; and
  • clarify that community development lending performance is always a factor considered in a large institution's lending test rating.
Mergers and Acquisitions

During 2013, the Board considered and approved seven banking merger applications that were protested on CRA or fair lending grounds or that raised issues involving consumer compliance or the CRA.12

  • An application by Trustmark Corporation, Jackson, Mississippi, to merge with BancTrust Financial Group, Inc. and acquire BancTrust's subsidiary bank, BankTrust (both in Mobile, Alabama) was approved in January.
  • An application by FirstMerit Corporation, Akron, Ohio, to acquire Citizens Republic Bancorp, Inc., and thereby indirectly acquire Citizens Bank, both of Flint, Michigan, was approved in March.
  • An application by Live Oak Bancshares, Inc., Wilmington, North Carolina, to engage in certain nonbanking activities through the acquisition of Government Loan Solutions, Inc., Cleveland, Ohio, was approved in August.
  • An application by Investors Bancorp, MHC, and Investors Bancorp, Inc., both of Short Hills, New Jersey, to acquire Roma Financial Corporation, MHC, Roma Financial Corporation, and Roma Bank, all of Robbinsville, New Jersey, and RomAsia Bank, South Brunswick Township, New Jersey¸ was approved in December.
  • An application by Ameris Bancorp, Moultrie, Georgia, to acquire The Prosperity Banking Company, St. Augustine, Florida, was approved in December.
  • An application by United Bankshares, Inc., Charleston, West Virginia, and its subsidiary, George Mason Bankshares, Inc., Fairfax, Virginia (collectively, "United"), to acquire Virginia Commerce Bancorp, Inc., Arlington, Virginia; and for United's subsidiary bank, United Bank, Fairfax, Virginia, to (1) merge with Virginia Commerce Bank, Arlington, Virginia, and (2) retain and operate branches at the locations of Virginia Commerce Bank's main office and branches was approved in December.
  • An application by Investors Bancorp, MHC, and Investors Bancorp, Inc., both of Short Hills, New Jersey, to acquire Gateway Community Financial, MHC, Gateway Community Financial Corporation, and GCF Bank, all of Sewell, New Jersey, was approved in December.

Members of the public submitted comments on each of the above applications. Public comments raised various issues for staff to consider in their analyses of the supervisory and lending records of the applicants. Several commenters alleged that various institutions failed to make credit available to certain minority groups and to low- and moderate-income (LMI) individuals. Other commenters raised concerns over the greater incidence of higher-cost loans to minority and LMI borrowers at a higher cost than to other borrowers. Commenters also alleged that institutions failed to meet the needs of small businesses in LMI geographies. Several commenters raised CRA-related concerns about inadequate plans to meet communities' credit needs.

In evaluating the merits of these comments, the Board considered information provided by applicants and analyzed relevant lending data in markets of interest to the commenters. The Board also incorporated other information, including examination reports with on-site evaluations of compliance with fair lending and other consumer protection laws and regulations and conferred with other regulators for their supervisory views. The Board conducted analyses to understand the lending activities and practices of the applicant and target institutions. On several applications, the Board placed conditions on its approval that were related to consumer compliance.

The Board also considered 98 applications, with a range of topics from change in control notices, branching requests, and mergers and acquisitions, with outstanding issues involving compliance with consumer protection statutes and regulations, including fair lending laws and the CRA. Eighty-six of those applications were approved and 12 were withdrawn or suspended.

In April 2013, the Board issued guidance to the public on the process for state member banks in less-than-satisfactory condition to establish a de novo branch. The guidance aims to increase transparency in the applications process related to branching requirements. The policy indicates that institutions with 3-ratings (or worse) generally should not pursue expansionary proposals and should focus on remediating identified supervisory issues; however, the policy describes certain circumstances under which a state member bank may be permitted to branch on a de novo basis.

Fair Lending Enforcement

The Federal Reserve supervises 850 state member banks. Pursuant to provisions of the Dodd-Frank Act, effective on July 21, 2011, the Consumer Financial Protection Bureau (CFPB) supervises state member banks with assets of more than $10 billion for compliance with the Equal Credit Opportunity Act (ECOA), and the Board has supervisory authority for compliance with the Fair Housing Act. For the 829 state member banks with assets of $10 billion or less, the Board retains the authority to enforce both the ECOA and the Fair Housing Act.

Fair lending reviews are conducted regularly within the supervisory cycle. Additionally, examiners may conduct fair lending reviews outside of the usual supervisory cycle, if warranted by fair lending risk. When examiners find evidence of potential discrimination, they work closely with DCCA's Fair Lending Enforcement Section, which provides additional legal and statistical expertise and ensures that fair lending laws are enforced consistently and rigorously throughout the Federal Reserve System.

Pursuant to the ECOA, if the Board has reason to believe that a creditor has engaged in a pattern or practice of discrimination in violation of the ECOA, the matter will be referred to the U.S. Department of Justice (DOJ). The DOJ reviews the referral and determines whether further investigation is warranted. A DOJ investigation may result in a public civil enforcement action or settlement. Alternatively, the DOJ may decide to return the matter to the Board for administrative enforcement. When a matter is returned to the Board, staff ensures that the institution takes all appropriate corrective action.

During 2013, the Board referred the following six matters to the DOJ:

  • One referral involved discrimination on the basis of national origin in violation of the ECOA and the FHA. For secondary market loans, the lender charged Hispanic borrowers higher prices than similarly situated non-Hispanic white borrowers. Legitimate pricing factors failed to explain the pricing disparities.
  • One referral involved discrimination on the basis of national origin, in violation of the ECOA. The lender charged Hispanic borrowers higher interest rates than non-Hispanic borrowers for unsecured consumer loans. Legitimate pricing factors failed to explain the pricing disparities.
  • One referral involved discrimination against potential borrowers based on the racial and ethnic composition of their neighborhood in violation of the ECOA and the FHA. Based on an analysis of the bank's delineated assessment area under the CRA, the location of its branches, its lending practices, and its marketing, the Board determined that the bank avoided lending in the minority neighborhoods of a major metropolitan area.
  • One referral involved discrimination on the basis of receipt of public assistance in violation of the ECOA and discrimination on the basis of handicap status in violation of the FHA. Although the applicant provided the information necessary to verify disability income pursuant to all relevant requirements, the lender requested additional information, including a doctor's letter stating that income received from disability would last for at least three years.
  • Two referrals involved discrimination on the basis of marital status, in violation of the ECOA. The banks improperly required spousal guarantees on commercial and agricultural loans, in violation of Regulation B.

If a fair lending violation does not constitute a pattern or practice, the Federal Reserve acts on its own to ensure that the violation is remedied by the bank. Most lenders readily agree to correct fair lending violations. In fact, lenders often take corrective action as soon as they become aware of a problem. Thus, the Federal Reserve generally uses informal supervisory tools (such as memoranda of understanding between banks' boards of directors and the Reserve Banks, or board resolutions) to ensure that violations are corrected. If necessary to protect consumers, however, the Board can bring public enforcement actions.

Guidance on Minimum Standards for Prioritization and Handling Borrower Files with Imminent Scheduled Foreclosure Sale

In April, the Board issued guidance on sound business practices for residential mortgage servicing that Federal Reserve-supervised financial institutions are expected to address in their collections, loss mitigation, and foreclosure processing functions.13 The guidance confirms the minimum standards for the handling and prioritization of borrowers' files that are subject to an imminent (within 60 days) scheduled foreclosure sale. These minimum review criteria are intended to ensure a level of consistency across servicers, and are intended to be used to determine whether a scheduled foreclosure sale should be postponed, suspended, or cancelled because of critical defects in the borrower's file. The purpose of the guidance is to ensure that borrowers will not lose their homes without their files first receiving a pre-foreclosure sale review that, at a minimum, meets the standards listed in the Board's guidance.

Statement on Deposit Advance Products

In April 2013, the Board issued a statement to emphasize to state member banks the significant consumer risks associated with deposit advance products. State member banks are expected to consider the risks associated with deposit advance products, including potential consumer harm and the potential for elevated compliance risk, when designing and offering such products.14

The statement notes that in designing and offering deposit advance products, state member banks must comply with all applicable federal laws and regulations, including but not limited to requirements under the Truth in Lending Act (TILA), the Electronic Fund Transfer Act (EFTA), the Truth in Savings Act, and ECOA. In addition to these laws, institutions must act in accordance with section 5 of the Federal Trade Commission (FTC) Act, which prohibits UDAP, and section 1036 of the Dodd-Frank Act, which prohibits unfair, deceptive, or abusive acts or practices. Depository institutions must also comply with state laws and regulations. The statement further sets forth the Board's expectation that Federal Reserve examiners will thoroughly review any deposit advance products offered by supervised institutions for compliance with section 5 of the FTC Act, as well as other applicable laws.

Financial Fraud Enforcement Task Force and Other Outreach

As an active member of the Financial Fraud Enforcement Task Force (FFETF), the Board coordinates with other agencies to facilitate consistent and effective enforcement of the fair lending laws.15 The director of the Board's DCCA co-chairs the FFETF's Non-Discrimination Working Group with the assistant attorney general for DOJ's Civil Rights Division, the deputy general counsel of the U.S. Department of Housing and Urban Development, the assistant director of the CFPB's Office of Fair Lending and Equal Opportunity, and the Conference of State Bank Supervisors. In 2013, the Board and the Non-Discrimination Working Group sponsored a free interagency webinar that had more than 4,000 registrants, most of which were community banks.

In addition, the Federal Reserve participates in numerous meetings, conferences, and trainings sponsored by consumer advocates, industry representatives, and interagency groups. Fair Lending Enforcement staff meets regularly with consumer advocates, supervised institutions, and industry representatives to discuss fair lending matters and receive feedback. Through this outreach, the Board is able to address emerging fair lending issues and promote sound fair lending compliance.

Coordination with Other Federal Banking Agencies

The member agencies of the Federal Financial Institutions Examination Council (FFIEC) develop consistent examination principles, standards, procedures, and report formats.16 In 2013, the FFIEC member organizations issued examination procedures for consumer protection regulations, as discussed below.17

Interagency Examination Procedures for Regulation X and Z

Procedures were revised to reflect a series of amendments to Regulations X (Real Estate Settlement Procedures Act) and Z (Truth in Lending Act) that were issued in 2013 by the CFPB.18 The CFPB's rulemakings implement provisions of the Dodd-Frank Act that pertain to ability-to-repay and qualified mortgage (ATR/QM) standards, loan originator compensation and qualification, mortgage servicing, loans subject to the Home Ownership and Equity Protection Act, and escrows. The new requirements generally became effective on January 10, 2014. The Regulation Z procedures were also revised to incorporate interagency amendments regarding appraisals finalized in January 2013 and generally effective on January 18, 2014.

Interagency Examination Procedures for Regulation E

Procedures were revised to incorporate the CFPB's addition of remittance transfer provisions in a new Subpart B to Regulation E (Electronic Fund Transfer Act), and to reflect elimination of the requirement that a fee notice be posted on or at automated teller machines.19

Interagency Examination Procedures for the Garnishment of Accounts Containing Federal Benefit Payments Rule

Procedures were revised to reflect a final rule issued by the Department of the Treasury, the Social Security Administration, the Department of Veteran Affairs, the Railroad Retirement Board, and the Office of Personnel Management to implement statutory restrictions on garnishment of certain exempt federal benefit payments.20 The rule establishes procedures that a financial institution must follow when it receives a garnishment order against an account holder who receives certain Federal benefit payments by direct deposit.

Interagency Guidance Regarding Social Media: Consumer Compliance Risk Management

In December, the FFIEC member agencies jointly issued guidance addressing the applicability of federal consumer protection and compliance laws, regulations, and policies to activities conducted via social media by financial institutions.21 The use of social media to attract and interact with customers can impact a financial institution's risk profile, including risk of harm to consumers, compliance and legal risks, operational risks, and reputation risks. The guidance is intended to assist financial institutions in understanding potential risks associated with the use of social media, along with expectations for managing those risks. The guidance does not impose additional obligations on financial institutions, but instead highlights existing legal requirements that apply to social media forums.

Interagency Guidance on Privacy Laws and Reporting Financial Abuse of Older Adults

In September, the FFIEC member agencies, Commodity Futures Trading Commission, Federal Trade Commission, and Securities and Exchange Commission issued guidance to clarify the applicability of privacy provisions of the Gramm-Leach-Bliley Act (GLBA) to reporting suspected financial exploitation of older adults.22 The guidance clarifies for financial institutions that reporting suspected elder financial abuse to law enforcement, social service and other appropriate agencies does not, in general, violate the privacy provisions of the GLBA. The guidance does not impose additional requirements on financial institutions but, rather, informs individuals who may observe signs of possible financial exploitation of an older adult about GLBA exceptions that may permit sharing of nonpublic personal information with local, state, or federal agencies for the purpose of reporting suspected financial abuse of older adults.

Interagency Guidance on the Relationship between Ability to Repay (ATR)/Qualified Mortgage (QM) and Other Requirements

The CFPB's ATR/QM rule requires lenders to make reasonable, good faith determinations that consumers have the ability to repay mortgage loans before extending such loans. The rule provides lenders with a presumption of compliance with the ability-to-repay requirements for loans that meet the regulatory definition of a "qualified mortgage." At the same time, the rule permits lenders to make loans that do not qualify as QMs, referred to as "non-QM loans."

The Board and other federal banking regulators received inquiries regarding the relationship between the ATR/QM rule and other regulatory requirements, including those that pertain to fair lending and the Community Reinvestment Act. In particular, institutions raised concerns regarding whether a decision to offer only qualified mortgages would adversely impact their compliance with those other requirements. In October 2013, the FFIEC member agencies issued a statement clarifying that the agencies do not anticipate that a creditor's decision to offer only qualified mortgages would, absent other factors, elevate a supervised institution's fair lending risk. In December 2013, the Board, FDIC, NCUA, and OCC issued a statement clarifying that residential mortgage loans will not be subject to safety-and-soundness criticism based solely on their status as QMs or non-QMs. The agencies that conduct CRA evaluations (the Board, FDIC, and OCC) further clarified that they do not anticipate that institutions' decisions to originate only QMs, absent other factors, would adversely affect their CRA evaluations.23

Coordination with the Consumer Financial Protection Bureau

During 2013, staff continued to work through the implementation of the Interagency Memorandum of Understanding on Supervision Coordination with the CFPB. The agreement is intended to establish arrangements for coordination and cooperation between the CFPB and the OCC, Federal Deposit Insurance Corporation (FDIC), National Credit Union Association (NCUA), and the Board of Governors. The agreement strives to minimize unnecessary regulatory burden, and avoid unnecessary duplication of effort and conflicting supervisory directives amongst the prudential regulators. The regulators work cooperatively to share exam schedules for covered institutions and covered activities to plan simultaneous exams, provide final drafts of examination reports for comment, and share supervisory information.

Examiner Training

Ensuring that financial institutions comply with laws that protect consumers and encourage community reinvestment is an important part of the bank examination and supervision process. As the complexity of both consumer financial transactions and the regulatory landscape has increased, training for consumer compliance examiners has become more important than ever before. The examiner staff development function is responsible for the ongoing development of the professional consumer compliance supervisory staff, and ensuring that these staff members have the skills necessary to meet their supervisory responsibilities now and in the future.

Consumer Compliance Examiner Training Curriculum

The consumer compliance examiner training curriculum consists of five courses focused on consumer protection laws, regulations, and examining concepts. In 2013, these courses were offered in 13 sessions, and training was delivered to a total of 242 System consumer compliance examiners and staff members and 8 state banking agency examiners.

When appropriate, courses are delivered via alternative methods, such as the Internet or other distance-learning technologies. For instance, several courses use a combination of instructional methods, including both classroom instruction focused on case studies and specially developed computer-based instruction that includes interactive self-check exercises.

Board and Reserve Bank staff regularly review the core curriculum for examiner training, updating subject matter and adding new elements as appropriate. During 2013, staff began migrating fundamentals content from a classroom-based training model to more online delivery, dedicating classroom time for examiners to apply their learning using case studies and reviewing loan files.

Outreach and Training: Dodd-Frank Act

In 2013, the CFPB promulgated new rules pursuant to the Dodd-Frank Act. Board and CFPB staff collaborated on examiner training and outreach to bankers. Specifically, training was provided to examiners using the Federal Reserve's Rapid Response webinar platform on the following topics: the Home Ownership and Equity Protection Act, qualified mortgage/ability-to-repay, appraisals, escrow, and servicing rules under Regulation Z.

The Board collaborated with the CFPB to provide outreach to bankers, using the Federal Reserve's Outlook Live platform to broadcast a free webinar on small creditor qualified mortgages (see box 1).

Box 1. Promoting Outreach, Communication, and Education to Support Financial Institutions and Advance Consumer Compliance

The Federal Reserve has worked to increase transparency and outreach in recent years in order to provide the public and the financial industry with a better understanding of its policies and decisions. Examples of fulfillment of this commitment include the Board's press conferences to communicate monetary policy decisions and various efforts to increase outreach to the financial industry.1

The Division of Consumer and Community Affairs (DCCA) contributes to increased transparency in the consumer compliance arena by providing guidance and clarification to bankers as they navigate an expanded supervisory environment and an array of new regulations. In recent years, new communication channels have been developed to increase outreach by and access to consumer compliance experts to provide insight on supervisory issues and policies. DCCA works with its banking supervision colleagues throughout the Federal Reserve System and at other agencies to support a variety of communication platforms, some of which leverage technology and foster two-way communication between regulators and banks on consumer compliance topics and emerging issues. Topics range from complying with the prohibition on unfair or deceptive acts or practices to understanding mortgage appraisal rules.

Consumer Compliance Outlook, a quarterly online publication sponsored by the Federal Reserve Bank of Philadelphia, features in-depth articles on emerging compliance issues and on important developments within the consumer compliance arena.2 For example, recent articles have addressed topics such as new garnishment rules and the role of internal audit, and have also provided insights from (former) Governor Elizabeth Duke in commemoration of the newsletter's five-year anniversary. The publication reaches more than 15,000 subscribers. In addition, the Federal Reserve has launched Community Banking Connections, a website that serves as a "one-stop shop" for information on issues that affect community banks, as well as providing links to tools and resources that can help them.3

To address consumer compliance issues with officials of state member banks and other supervised institutions, the Federal Reserve Bank of San Francisco hosts a national webinar series called Outlook Live, which complements the Consumer Compliance Outlook publication.4 Outlook Live webinars frequently feature staff from each of the federal banking regulators, so that institutions have the opportunity to hear perspectives of the Federal Reserve as well as the other agencies. For example, in 2013, Consumer Financial Protection Bureau (CFPB) staff presented an Outlook Live session that discussed provisions of the CFPB's new qualified mortgage rule applicable to small creditors. In another webinar, Board staff and representatives from six other agencies discussed emerging fair lending issues and hot topics from their agencies' vantage point. Each of these webinars regularly attracts thousands of registrants.

Further, the Board fosters improved communication and outreach with community bankers through its Community Depository Institutions Advisory Council.5 The council's membership is drawn from smaller banks, credit unions, and savings associations, with representatives from each of the 12 Reserve Bank districts, providing the Board with a direct line of communication from community bankers about supervisory and regulatory issues that affect their institutions as well as about local economic trends. During recent meetings, council members have discussed with the Board potential impacts of new mortgage rules on community banks' product offerings and compliance functions.

These communication, outreach, and education mechanisms help provide valuable transparency in the implementation of consumer compliance supervision policies, advancing the goal of enabling strong consumer protection programs at financial institutions and providing consumers with the protections intended by such policies.

1. For more information, see to text

2. For more information, see  Leaving the Board .Return to text

3. For more information, see  Leaving the Board .Return to text

4. For more information, see  Leaving the Board .Return to text

5. For more information, see to text

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Ongoing Training Opportunities

In addition to providing core examiner training, the examiner staff development function emphasizes the importance of continuing life-long learning. Opportunities for continuing learning include special projects and assignments, self-study programs, rotational assignments, the opportunity to instruct at System schools, mentoring programs, and an annual consumer compliance examiner forum, where senior consumer compliance examiners receive information on emerging compliance issues and are able to share best practices from across the System.

In 2013, the System continued to offer Rapid Response sessions. Debuted in 2008, Rapid Response sessions offer examiners one-hour teleconference webinars on emerging issues or urgent training needs that result from the implementation of new laws, regulations or supervisory guidance as well as case studies. A total of 18 consumer compliance Rapid Response sessions were designed, developed, and presented to System staff during 2013.

Responding to Consumer Complaints and Inquiries

The Federal Reserve investigates complaints against state member banks and selected nonbank subsidiaries of bank holding companies (Federal Reserve regulated entities), and forwards complaints against other creditors and businesses to the appropriate enforcement agency. Each Reserve Bank investigates complaints against state member banks and selected nonbank subsidiaries in its District. The Federal Reserve also responds to consumer inquiries on a broad range of banking topics, including consumer protection questions.

In late 2007, the Federal Reserve established Federal Reserve Consumer Help (FRCH) to centralize the processing of consumer complaints and inquiries. In 2013, FRCH processed 41,220 cases--approximately 5 percent of cases were referred to the Federal Reserve from other agencies. Of these cases, more than half (27,720) were inquiries and the remainder (13,500) were complaints, with most cases received directly from consumers. Of the 13,500 complaints received, 2,529 were complaints against Federal Reserve regulated entities, and the remaining complaints were referred to the appropriate regulatory agencies and government offices for investigation. To minimize the time required to re-route complaints to these agencies, referrals were transmitted electronically.

Consumers can contact FRCH by telephone, fax, mail, e-mail, or online, but most FRCH consumer contacts in 2013 occurred by telephone (58 percent). Thirty-nine percent (15,875) of complaint and inquiry submissions were made electronically (via e-mail, online submissions, and fax), and the online form page received approximately 66,147 visits during the year.

Consumer Complaints

Complaints received against Federal Reserve regulated entities totaled 2,529 in 2013. Approximately 35 percent (892) of these complaints were closed without investigation pending the receipt of additional information from consumers. Nearly 9 percent of the total complaints remained open and under investigation at December 31, 2013. Of the remaining complaints (1,412), 69 percent (968) involved unregulated practices, and 31 percent (444) involved regulated practices. (Table 1 shows the breakdown of complaints about regulated practices by regulation or act; table 2 shows complaints by product type.)

Table 1. Complaints against state member banks and selected nonbank subsidiaries of bank holding companies about regulated practices, by regulation/act, 2013
Regulation/act Number
Total 444
Regulation AA (Unfair or Deceptive Acts or Practices) 10
Regulation B (Equal Credit Opportunity) 15
Regulation BB (Community Reinvestment) 2
Regulation C (Home Mortgage Disclosure) 1
Regulation CC (Expedited Funds Availability) 60
Regulation D (Reserve Requirements) 2
Regulation DD (Truth in Savings) 58
Regulation E (Electronic Funds Transfers) 46
Regulation H (National Flood Insurance Act / Insurance Sales) 14
Regulation P (Privacy of Consumer Financial Information) 13
Regulation V (Fair and Accurate Credit Transactions) 13
Regulation Z (Truth in Lending) 59
Check 21 Act 1
Fair Credit Reporting Act 86
Fair Debt Collection Practices Act 23
Fair Housing Act 17
HOPA (Homeowners Protection Act) 1
Real Estate Settlement Procedures Act 11
Protecting Tenants at Foreclosure Act 1
Servicemembers Civil Relief Act (SCRA) 11
Regulation AA (Unfair or Deceptive Acts or Practices) 7
Regulation B (Equal Credit Opportunity) 26
Regulation BB (Community Reinvestment) 2
Regulation C (Home Mortgage Disclosure) 0
Regulation CC (Expedited Funds Availability) 65
Regulation D (Reserve Requirements) 3
Regulation DD (Truth in Savings) 55
Regulation E (Electronic Funds Transfers) 67
Regulation G (Disclosure/Reporting of CRA-Related Agreements) 0
Regulation H (National Flood Insurance Act/Insurance Sales) 20
Regulation M (Consumer Lending) 0
Regulation P (Privacy of Consumer Financial Information) 17
Regulation Q (Payment of Interest) 1
Regulation V (Fair and Accurate Credit Transactions) 14
Regulation Z (Truth in Lending) 51
Fair Credit Reporting Act 49
Fair Debt Collection Practices Act 15
Fair Housing Act 14
Home Ownership Counseling 0
HOPA (Homeowners Protection Act) 2
Real Estate Settlement Procedures Act 31
Right to Financial Privacy Act 3
Protecting Tenants at Foreclosure Act 2
Servicemembers Civil Relief Act 3

Table 2. Complaints against state member banks and selected nonbank subsidiaries of bank holding companies about regulated practices, by product type, 2013
Subject of complaint/product type All complaints Complaints involving violations
Number Percent Number Percent
Total 444 100 31 7
Discrimination alleged
Real estate loans 16 4 0 0
Credit cards 1 0.2 0 0
Other loans 2 1 0 0
Nondiscrimination complaints
Checking accounts 136 30 13 3
Real estate loans 86 19.4 9 2
Credit cards 122 27.4 1 0.2
Other 81 18 8 1.8

Complaints about Regulated Practices

The majority of regulated practices complaints concerned checking accounts (30 percent), real estate 24 (19.4 percent), and credit cards (27.4 percent). The most common checking account complaints related to funds availability not as expected (31 percent); insufficient funds or overdraft charges and procedures (19 percent); disputed withdrawal of funds (9 percent); and disputed rates, terms, or fees (7 percent). The most common real estate complaints by problem code related to debt collection/foreclosure concerns (24 percent); flood insurance (14 percent); disputed rates, terms, and fees (14 percent); and payment errors or delays (9 percent). The most common credit card complaints related to inaccurate credit reporting (37 percent), bank debt-collection tactics (13 percent), and billing error resolutions (7 percent).

Nineteen regulated practices complaints alleging discrimination were received. Of these, six complaints (1 percent of total regulated complaints) alleged discrimination based on prohibited borrower traits or rights.25 Two discrimination complaints were related to the race, color, national origin or ethnicity of the applicant or borrower. One discrimination complaint was related to either the age or handicap of the applicant or borrower. Of the complaints alleging discrimination based on a prohibited basis, there were no violations.

In 80 percent of investigated complaints against Federal Reserve regulated entities, evidence revealed that institutions correctly handled the situation. Of the remaining 20 percent of investigated complaints, 7 percent were deemed violations of law; 5 percent were identified errors which were corrected by the bank; and the remainder included matters involving litigation or factual disputes, withdrawn complaints, internally referred complaints, or information was provided to the consumer.

Complaints about Unregulated Practices

The Board continued to monitor complaints about banking practices not subject to existing regulations. In 2013, the Board received 968 complaints against Federal Reserve regulated entities that involved these unregulated practices. The majority of the complaints were related to real estate concerns (39 percent), credit cards (16 percent), checking account activity (14 percent), and commercial loans/leases (8 percent).

Complaint Referrals

The Federal Reserve forwarded 22 complaints to the Department of Housing and Urban Development (HUD) that alleged violations of the Fair Housing Act.26 The Federal Reserve's investigation of these complaints revealed one instance of illegal credit discrimination.27

Consumer Inquiries

The Federal Reserve received 27,720 consumer inquiries in 2013, covering a wide range of topics. Consumers were typically directed to other resources, including other federal agencies or written materials, to address their inquiries.

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Consumer Research and Emerging-Issues and Policy Analysis

Throughout 2013, DCCA analyzed emerging issues in consumer financial services policies and practices in order to understand their implications for the economic and supervisory policies that are core to the Federal Reserve's functions, as well as to gain insight into consumer financial decisionmaking.

Consumer Financial Services Research

In recent years, two notable forces have been converging in today's financial services landscape: 1) the increasing array of financial services--including banking services, shopping tools, and payment options--that has become available to consumers using cell phones and other mobile devices, and 2) the aging of the population. Collectively, these developments may ultimately have significant effects on the ways in which consumers conduct their financial lives. In 2013, DCCA explored the issues associated with each of these topics and conducted consumer surveys to gain insights and improve understanding of the dynamics in each area.

With respect to the use of mobile financial services, DCCA conducted its annual survey to revisit consumers' use of, and opinions about, mobile financial services. Since 2011, the survey has polled more than 2,200 individuals each year to learn whether and how they use mobile devices for banking and payments, and it was among the first to integrate questions about using mobile devices for shopping and comparing products along with questions about using mobile devices for banking and payments.

The findings of the surveys, conducted in the winter, are released each spring in the report Consumers and Mobile Financial Services. Results from the survey conducted in November 2012 were published in March 2013.28 For the third annual survey, conducted in December 2013, results will be published in early 2014. Given the rapid pace of developments in the mobile financial services market, DCCA plans to continue conducting this annual survey of consumers' use of mobile financial services and producing a corresponding report summarizing the survey results.

Recognizing that in the aging U.S. population, about one in five individuals will be over the age of 65 by 2060 (up from one in seven today), DCCA conducted the Older Adults Survey to gather data around the financial experience of 1,800 adults over the age of 40. The combination of a major demographic shift with the aging of the baby boomers, who have longer life expectancies, and an increasingly complex financial marketplace raise questions about the financial stability of older adults in the years ahead. The survey found that many older adults carry debt late in life, potentially undermining their financial security. One-half of credit card users carry balances. Also, one in eight carries student loan debt for themselves or their children. Furthermore, owning a home outright by late middle-age is no longer the norm. Though not necessarily a sign of financial stress, substantial numbers of older adults carry debt secured by their homes, including six in ten of those in their 60s and nearly four in ten of those age 70 and older. Mortgage debt is of particular significance because homes are the largest component of net worth of many older adult households, and this debt may signal a lack of resources to help fund retirement or other expenses.

To explore these issues further, Policy Analysis staff convened a one-day event in July, held in conjunction with the release of a Board briefing paper, Insights into the Financial Experiences of Older Adults.29 The forum aimed to identify future research areas for the field at large. Discussions focused on the financial circumstances of subgroups of older adults, housing needs and affordability, employment and retirement transitions, and the role of cognition in financial decisionmaking. Forum participants shared examples of policies, products, and services that may be promising ways to meet the financial needs and choices of aging consumers.

Emerging-Issues Analysis

The Policy Analysis function of DCCA provides key insights, information, and analysis on emerging financial services issues that affect the well-being of consumers and communities. To this end, staff follow and analyze trends, lead division-wide working groups, and organize expert roundtables to identify emerging risks and inform policy recommendations. In 2013, the team was actively engaged in issues and activities to promote household financial security and sustainable recovery from the financial crisis. Staff contributed analyses on a broad range of policy issues from recovery trends in local housing markets, to the implications of mobile banking, existing and emerging credit products, and challenges facing certain segments of consumers.

Investors in Single-Family Housing: Changing the Profile of Communities

While many signs point to continued recovery in the housing sector nationally, the impact of the housing crisis and the extent of recovery vary greatly by market. Some communities are experiencing a surge in demand for foreclosed properties by private investors, including large institutional investors and hedge funds. Because of their ability to transact purchases quickly, buy large numbers of homes and then renovate them as rentals, investors have been able to help absorb excess inventory and stabilize communities. However, the prevalence of investor activity in some areas raises concerns about crowding out owner-occupants and the ability of firms to manage and maintain the properties they acquire. Meanwhile, other communities contend with large numbers of vacant and abandoned homes that have imposed significant costs on the surrounding neighborhoods--including decreased property values and, in some places, a rise in crime. They continue to struggle with a lack of investors or prospective owner-occupants to purchase excess vacant properties.

In late February, DCCA staff from both the Community Development and Policy Analysis teams, together with staff from the Federal Reserve Banks of Cleveland and Philadelphia, convened Renters, Homeowners, and Investors: The Changing Profile of Communities, a one-day event focused on current patterns of housing investment in neighborhoods and the various ways this activity is changing communities. More than 100 researchers, practitioners, investors and state and local officials attended to discuss effective approaches for stabilizing neighborhoods post-crisis.30

Throughout the year DCCA staff, together with colleagues from the Federal Reserve Banks, continued to closely monitor housing markets across the nation to better understand the direct and indirect effects of the crises on neighborhoods and their residents. Staff also contributed to the stabilization of neighborhoods by conducting applied research, convening key stakeholders, and highlighting community approaches that are working.

Race and Wealth: Examining the Trends

Without wealth, it is difficult for families to maintain their standard of living when there are setbacks--the unexpected house repair, lost job, or sudden illness of a family breadwinner--much less to invest for the future. During a financial crisis, the lack of sufficient wealth to overcome financial shocks can delay considerably a family's ability to recover. Minority families face particular challenges. Disparities in wealth between white and minority families have persisted for decades, in both strong and weak economies, and the most recent crisis was no exception. National survey data, including the Board's Survey of Consumer Finances, show minority families experienced larger declines in their net worth than white families, and in turn, have fewer assets to draw upon to rebuild wealth.

In November 2013, the DCCA policy analysis staff convened an external group of researchers and public policy experts to discuss race and wealth trends and to consider the implications of continued disparities in wealth, particularly in the recent economic crisis. Discussion focused on constraints on saving and rebuilding wealth due to higher unemployment rates and on fallout from the housing crisis--which erased homeownership gains and reduced home equity to a greater extent for black and Hispanic households. Staff will continue to monitor these trends and the effectiveness of alternative recovery strategies to assist minority families hard hit by the recession.

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Community Development

The Federal Reserve System's Community Development function promotes economic growth and financial stability for low- and moderate-income (LMI) communities and individuals through a range of activities: convening stakeholders, conducting and sharing research, and identifying emerging issues (see box 2 for an example). As a decentralized function, the Community Affairs Officers (CAOs) at each of the 12 Reserve Banks design activities to respond to the specific needs of the communities they serve, with oversight from Board staff. The Board's Community Development staff promote and coordinate Systemwide priorities, including the following five System Community Development strategic goals:

  1. support programs and promote policies that improve the financial stability of LMI households
  2. strengthen LMI communities by advancing comprehensive neighborhood revitalization and stabilization strategies
  3. foster innovative strategies that assist LMI communities and individuals in launching, growing, and sustaining small businesses
  4. advance innovation and efficiency in community development programs, funding, and infrastructure to promote scale, sustainability, and impact
  5. strategically communicate key findings of the Community Development function and share emerging community development issues and trends that have national implications

Labor Markets and Human Capital

In 2013, DCCA community development staff, in conjunction with staff from a number of Reserve Banks, convened internal and external experts to explore changing aspects of the U.S. labor market and the impact on workers. This initiative demonstrated that the increased use of "contingent" workers 31 was ripe for research, as the impact of this shift on workers is not clear-cut. In particular, DCCA staff sought to determine the experience and expectations of young workers entering the workforce in this new environment of workers increasingly acting as their own agents of employment, rather than primarily as employees of a particular firm. As a result, the Board surveyed more than 2,000 individuals between 18 and 30 about their education and training, experience as a paid employee, and self-employment activities. In 2014, the Board will use the data collected to develop a report for policymakers, researchers, and practitioners to further their work.

This body of work is a continuation of work, begun in fall 2011, that arose from concerns of the attenuating effects of long-term unemployment on the broader economic recovery and the particular issues facing low-income communities. A collection of regional perspectives on this issue was gathered during a series of forums held throughout the country with primarily intermediary organizations involved in the delivery of workforce development services and local employers. Insights into the complex factors creating long-term unemployment conditions, particularly in low-income communities, and promising workforce development strategies were published in December 2012, in "A Perspective from Main Street: Long-Term Unemployment and Workforce Development," which provides a summary of the key topics that emerged from the forums and examples of how those issues were reflected in different parts of the country and for different populations.32

Community Data Initiative

The Community Data Initiative (CDI) is a pilot effort to better understand current and emerging community economic conditions around the country, with a special focus on capturing issues impacting low-to-moderate income communities, using targeted polling. The Board and each of the 12 Reserve Banks participate in this collaborative research project to provide systematic and relevant community conditions and trend information on a consistent basis. The Reserve Banks administer web-based polls and surveys of key stakeholders within their districts. The Board surveys affiliates and grantees of NeighborWorks® America, providing a menu of national benchmark findings for Reserve Bank comparisons. All information collected through the CDI is voluntary.

Community stakeholders often play a central role in the community and economic development of low-income locales. These stakeholders include such organizations as community development financial institutions, credit unions, community banks, non-profit service providers and faith-based organizations, public sector agencies, small business owners, and community colleges. Recognizing that information from such organizations can help explain local changes and can complement the results of other surveys, Federal Reserve System staff has engaged in several modes of systematically collecting such information at the community level. While the initiative is too new to yield definitive results, the Federal Reserve is exploring the most effective and efficient means to gather and interpret information from these community stakeholders.

This work parallels exploratory work happening outside the United States. Board staff presented an overview of the CDI project at the World Statistics Congress in 2013, prompting conversations with other central banks and external researchers about their own interests in better understanding emerging issues in their own communities.

Box 2. Resilience and Rebuilding for Low-Income Communities: Research to Inform Policy and Practice

"Resilient communities require more than decent housing, important as that is; they require an array of amenities that support the social fabric of the community and build the capabilities of community residents. The holistic approach has the power to transform neighborhoods and, as a result, the lives of their lower-income residents."
--Federal Reserve Chairman Ben S. Bernanke, April 12, 2013

Every two years, the Federal Reserve System hosts its signature community development research conference, convening a cross-discipline audience to generate and explore the latest research in community economic policy and to share models of success. The event is a unique forum that gathers a diverse group of community developers and practitioners, policymakers, philanthropists, researchers, financial services providers, government officials, and students.

In April, the System held its eighth conference, with the theme of improving resiliency and rebuilding in low-income households and neighborhoods.1 Led by the Community Development Offices of the Board and the Federal Reserve Bank of Atlanta, the event attracted nearly 350 participants and was a catalyst for new ideas, approaches, and strategies for the community development industry and academic field. During the two-day program, featured panel discussions delved into the core issues critical to advance effective and sustainable development:

  • People: Why did young households lose so much wealth during the housing crisis?
  • Places: What are the linkages between the national poverty rate and the number of people living in concentrated poverty?
  • Human capital and jobs: What insights can bring better understanding of the dynamics of labor market in low-income communities?
  • Housing: What is the impact of initiatives aimed at addressing distressed housing markets in low-income communities, such as housing vouchers on rental prices, the effect of pre-purchase homeownership counseling on mortgage delinquency, and the neighborhood social impacts of home rehabilitation?
  • Small business: What factors lead to small business resilience?
  • Rural: What are the critical community and economic development issues in rural areas?
  • Using data to test and tell: What data and research approaches help overcome the challenge of analyzing the complex development issues of low-income communities?
  • Collaborating for the future: How can the interrelated sectors of education, public health, financial stability, and employment collaborate more effectively?

Additional highlights of the event were thought-provoking keynotes addresses by Ben Bernanke, Chairman of the Federal Reserve Board, and Sudhir Venkatesh, a professor of Sociology Columbia University and nationally recognized expert in the economics of underserved communities.2

1. For more information, papers, and videos from the conference, see  Leaving the Board .Return to text

2. For transcripts of the keynote addresses, see and  Leaving the Board .Return to text

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Consumer Laws and Regulations

Throughout 2013, DCCA continued to administer the Board's regulatory responsibilities with respect to certain entities and specific statutory provisions of the consumer financial services and fair lending laws. DCCA also drafts regulations and issues regulatory interpretations and compliance guidance for the industry, the Reserve Banks, and other federal agencies.

Appraisal Requirements for "Higher-Risk Mortgage Loans"

In January 2013, the Board and five federal financial regulatory agencies issued a final rule to establish appraisal requirements for "higher-risk mortgage loans."33 The rule implements amendments to the TILA made by the Dodd-Frank Act.34 Mortgage loans are covered by the rule if they are higher-priced secured by a consumer's home and have interest rates above certain thresholds.

For higher-priced mortgage loans, the rule requires creditors to use a licensed or certified appraiser who prepares a written appraisal report based on a physical visit of the interior of the property. The rule also requires creditors to disclose to applicants information about the purpose of the appraisal and provide consumers with a free copy of any appraisal report.

If the seller acquired the property for a lower price during the prior six months and the price difference exceeds certain thresholds, creditors will have to obtain a second appraisal at no cost to the consumer. This requirement for higher-priced home-purchase loans is intended to address fraudulent property flipping by seeking to ensure that the value of the property legitimately increased.

In response to public comments, the agencies published a supplemental proposal to request comment on possible exemptions for "streamlined" refinance programs and small-dollar loans, and to solicit views on the rule's applicability to loans secured by manufactured homes. A final rule was issued in December to exempt a subset of higher-priced mortgage loans from these appraisal requirements, with the intention of saving borrowers time and money while still ensuring that the loans are financially sound.35 Under the supplemental rule, loans of $25,000 or less and certain "streamlined" refinancings are exempt from the Dodd-Frank Act's appraisal requirements for higher-risk loans, which took effect January 18, 2014.

The rule also contains special provisions for manufactured homes, which can present unique issues in determining the appropriate valuation method. To ensure that access to affordable housing options is not hindered while creditors make the necessary adjustments, the requirements for manufactured home loans will not become effective for 18 months. Starting on July 18, 2015, loans secured by an existing manufactured home and land will be subject to the Dodd-Frank Act's appraisal requirements. Loans secured by a new manufactured home and land will be exempt from the requirement that the appraiser visit the home's interior. For loans secured by manufactured homes without land, creditors will be allowed to use other valuation methods without an appraisal, such as using third-party valuation services or "book values."

Proposed Flood Insurance Rule

In October, the Board and four other federal agencies issued a joint notice of proposed rulemaking to amend regulations pertaining to loans secured by property located in special flood hazard areas.36 The proposed rule would implement certain provisions of the Biggert-Waters Act with respect to private flood insurance, the escrow of flood insurance payments, and the forced-placement of flood insurance.

The proposed rule would require that regulated lending institutions accept private flood insurance as defined in the Biggert-Waters Act to satisfy the mandatory purchase requirements. It also solicits comment on whether the agencies should adopt additional regulations on the acceptance of flood insurance policies issued by private insurers. In addition, the proposal would require regulated lending institutions to escrow payments and fees for flood insurance for any new or outstanding loans secured by residential improved real estate or a mobile home--not including business, agricultural, and commercial loans--unless the institutions qualify for the statutory exception. Finally, the proposal would clarify that regulated lending institutions have the authority to charge a borrower for the cost of force-placed flood insurance coverage beginning on the date on which the borrower's coverage lapsed or became insufficient and would stipulate the circumstances under which a lender must terminate force-placed flood insurance coverage and refund payments to a borrower.

The public comment period for the rule closed on December 10, 2013, other than for comments related to the Paperwork Reduction Act analysis, which were due by December 30, 2013.

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1. Beginning with 2013, reporting of the number of examinations completed will reflect the period from January 1 to December 31. The Federal Reserve's 2012 Annual Report to Congress captured consumer compliance and CRA examinations from July 1, 2011, to June 30, 2012. For the period from July 1 to December 31, 2012, the Federal Reserve completed 136 consumer compliance examinations of state member banks and of 1 foreign banking organization, as well as 121 CRA examinations of state member banks. Return to text

2. For more information, see to text

3. For more information, see to text

4. The main components of the RFI rating system represent Risk Management (R), Financial Condition (F), and potential Impact (I) of the parent company and nondepository subsidiaries (collectively, nondepository entities) on the subsidiary depository institution(s). Return to text

5. For more information, see to text

6. For more information, see to text

7. For more information, see to text

8. For more information, see to text

9. For more information, see to text

10. For more information, see to text

11. For more information, see to text

12. Another protested application was withdrawn by the applicant. For more information on Orders on Banking Applications in 2013, go to to text

13. For more information, see to text

14. For more information, see to text

15. For more information about the FFETF, go to www.stopfraud.govReturn to text

16. FFIEC member agencies include the Board of Governors, the FDIC, the NCUA, the OCC, the State Liaison Committee (SLC), and the CFPB. Return to text

17. In prior years, the Board included in this section the findings and rate of compliance with the consumer protection rules for which it had rulemaking authority as reported by the various federal agencies with supervisory authority for those regulations. This reporting responsibility transferred to the CFPB in July 2011. For more information see to text

18. For more information, see and to text

19. For more information, see to text

20. For more information, see to text

21. For more information, see to text

22. For more information, see to text

23. For more information, see to text

24. Real estate loans include adjustable-rate mortgages, residential construction loans, open-end home equity lines of credit, home improvement loans, home purchase loans, home refinance/closed-end loans, and reverse mortgages. Return to text

25. This includes alleged discrimination based on race, color, religion, national origin, sex, marital status, age, applicant income derived from public assistance programs, or applicant reliance on provisions of the Consumer Credit Protection Act. Return to text

26. A memorandum of understanding between HUD and the federal bank regulatory agencies requires that complaints alleging a violation of the Fair Housing Act be forwarded to HUD. Return to text

27. The complaint referred to HUD was received in 2012, and the violation determination and referral were completed in 2013. Return to text

28. See Board of Governors of the Federal Reserve System (2013), Consumers and Mobile Financial Services 2013, (Washington: Board of Governors, March), to text

29. For more information, the briefing paper, video clips, and other materials from the forum, see to text

30. For more information, presentations, video clips, and summaries of the discussions, see to text

31. See Department of Labor, "Contingent Workers," to text

32. Board of Governors of the Federal Reserve System (2012), A Perspective from Main Street: Long-Term Unemployment and Workforce Development (Board of Governors: Washington, D.C., December), to text

33. The five agencies issuing the rule are the CFPB, the FDIC, the Federal Housing Finance Agency (FHFA), NCUA, and OCC. Return to text

34. See Board of Governors, CFPB, FDIC, FHFA, NCUA, and OCC (2013), "Agencies Issue Final Rule on Appraisals for Higher-Priced Mortgage Loans," joint press release, January 18, to text

35. See Board of Governors, CFPB, FDIC, FHFA, NCUA, and OCC (2013), "Agencies Issue Final Rule to Exempt Subset of Higher-Priced Mortgage Loans from Appraisal Requirements," joint press release, December 12, to text

36. See Board of Governors, CFPB, FDIC, FHA, NCUA, and OCC (2013), "Agencies Request Comment on Proposed Flood Insurance Rule," joint release, October 11, to text

Last update: July 2, 2014

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