Consumer and Community Affairs

The Division of Consumer and Community Affairs (DCCA) has primary responsibility for carrying out the Board of Governors' role in consumer financial protection and community development. DCCA conducts consumer and community development-focused supervision, research, and policy analysis, as well as implements relevant statutory requirements for community reinvestment. Through these efforts, the division works to ensure that consumer and community perspectives inform Federal Reserve policy, research, and actions that advance DCCA's mission to promote a fair and transparent consumer financial services marketplace and effective community reinvestment.

Throughout 2015, the division engaged in numerous consumer and community-related functions and policy activities in the following areas:

• Formulating consumer-focused supervision and examination policy to ensure that financial institutions for which the Federal Reserve has authority comply with consumer protection laws and regulations and meet requirements of community reinvestment laws and regulations. The division provided oversight for the Reserve Bank consumer compliance supervision and examination programs in state member banks and bank holding companies (BHCs) through its policy development, examiner training, and supervision oversight programs, which include evaluation of state member banks' implementation of the Community Reinvestment Act (CRA), enforcement of a wide range of consumer protection laws and regulations including those related to fair lending, unfair or deceptive acts or practices (UDAP), and flood insurance; analysis of bank and BHC applications in regard to consumer protection, convenience and needs and the CRA; and processing of consumer complaints.
• Conducting rigorous research, analysis, and data collection to inform Federal Reserve and other policymakers about consumer protection risks and community economic development issues and
  opportunities. The division analyzed longstanding and emerging consumer financial services and community risks, practices, issues, and opportunities in order to understand and act on 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 related to financial services, implications of the financial crisis on young workers, and access to credit for small businesses.
• Engaging, convening, and informing key stakeholders to identify emerging issues and advance what works in community reinvestment and consumer protection. The division continued to promote fair and informed access to financial markets for all consumers, particularly 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.
• Writing and reviewing regulations that effectively implement consumer protection and community reinvestment laws. The division manages the Board's regulatory responsibilities with respect to certain entities and specific statutory provisions of the consumer financial services and fair lending laws. In 2015, DCCA participated in drafting interagency regulations, interpretations and compliance guidance for the industry and the Reserve Banks.

Supervision and Examinations

DCCA develops and supports supervisory policy and examination procedures for consumer protection laws and regulations, as well as the CRA, as part of its supervision of the organizations for which the Board has authority, including holding companies, state member banks,¹ 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 consumer protection laws and regulations are rigorously and consistently enforced for the approximately 840 state member banks that the Federal Reserve supervises for compliance with consumer protection and community reinvestment laws and regulations. Division staff provide guidance and expertise to the Reserve Banks on consumer protection laws and regulations, bank and BHC application analysis and processing, examination and enforcement techniques and policy matters, examiner training, and emerging issues. 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 ensuring compliance with consumer protection laws and assessing the adequacy of consumer compliance risk-management systems within regulated entities. During 2015, the Reserve Banks completed 253 consumer compliance examinations of state member banks and 42 examinations of foreign banking organizations, two examinations of Edge Act corporations, and two examinations of agreement corporations.²

Bank Holding Company Consolidated Supervision

During 2015, staff reviewed 119 bank and financial holding companies to ensure consumer compliance risk was appropriately incorporated into the consolidated risk-management program of the organization. Division staff participated with staff from the Board's Division of Banking Supervision and Regulation on numerous projects related to ongoing implementation of the Dodd-Frank Act, including standards for assessing corporate governance and continued integration of savings and loan holding companies (SLHCs) under Federal Reserve supervision.³

Mortgage Servicing and Foreclosure

Payment Agreement Status

Throughout 2015, Board staff continued to work to oversee and implement the enforcement actions against 16 mortgage loan servicers that were issued by the Federal Reserve and the Office of the Comptroller of the Currency (OCC) between April 2011 and April 2012. At the time of the enforcement actions, along with other requirements, the two regulators directed servicers to retain independent consultants to conduct comprehensive reviews of foreclosure activity to determine whether eligible⁴ borrowers suffered financial injury because of servicer errors, misrepresentations, or other deficiencies. The file review initiated by the independent consultants, combined with a significant borrower outreach process, was referred to as the Independent Foreclosure Review (IFR).

In 2013, the regulators entered into agreements with 15 of the mortgage loan servicers to replace the IFR with direct cash payments to all eligible borrowers and other assistance (the Payment Agreement).⁵ The participating servicers agreed to pay an estimated $3.9 billion to 4.4 million borrowers whose primary residence was in a foreclosure process in 2009 or 2010. The Payment Agreement also required the servicers to contribute an additional $5.8 billion dollars in other foreclosure prevention assistance, such as loan modifications and forgiveness of deficiency judgments. For the participating servicers, fulfillment of the agreement will satisfy the foreclosure review requirements of the enforcement actions issued by the regulators in 2011 and 2012. The Payment Agreement did not affect the servicers' continuing obligations under the enforcement actions to address deficiencies in their mortgage servicing and foreclosure policies and procedures.

A paying agent, Rust Consulting, Inc., (Rust) 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. Letters with checks were mailed to eligible borrowers throughout 2013, 2014, and 2015, including checks that were reissued upon the borrower's request due to expiration, a request for a change in payee, or a request by borrowers to split the check amongst the borrowers on the loan. For checks that have not been cashed or were returned undeliverable, the agencies directed Rust to expand its efforts to locate more-current address information for the unpaid borrowers. For nearly all borrowers, by December 31, 2015, at least two years have passed since their initial checks were mailed. During that two-year period, at least two and in most cases, three attempts have been made to reach each borrower.

As of December 31, 2015, $3.5 billion has been distributed through 3.9 million checks, representing nearly 91 percent of the total value of the funds. 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.⁶

In November, Board members approved the key elements of a plan to end the implementation of the Payment Agreement. On November 19, 2015, the Federal Reserve directed Rust to redistribute any funds remaining after all outstanding checks expire on March 31, 2016, to eligible borrowers of Federal Reserve-supervised servicers who have cashed or deposited their checks. This direction applied only to funds related to mortgage servicers supervised by the Federal Reserve, and the redistribution of remaining funds is expected to occur in mid-2016. The Federal Reserve intends to distribute the maximum amount of funds to borrowers affected by deficient servicing and foreclosure practices.

Foreclosure Prevention Actions

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. The foreclosure prevention actions are expected to provide significant and meaningful relief or assistance to qualified borrowers and, as stated in the agreement, "should not disfavor a specific geography within or among states, nor disfavor low and/or moderate income borrowers, and 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. Several of the participating servicers chose this option and have met their foreclosure prevention obligations.

All servicers were required to submit reports detailing the consumer-relief actions they had taken to satisfy these requirements. The foreclosure prevention assistance actions reported included loan modifications, short sales, deeds-in-lieu of foreclosure, debt cancellation, and lien extinguishment. In order to receive credit toward the servicer's total foreclosure prevention obligation, the actions submitted must be validated by the regulators. As of December 31, 2015, a third party is in the process of completing this validation and ensuring that the foreclosure-prevention assistance amounts meet the requirements of the amendments to the enforcement actions.

Servicer Efforts to Address Deficiencies

In addition to the foreclosure review requirements, the enforcement actions required mortgage servicers to submit acceptable written plans to address various mortgage loan servicing and foreclosure processing deficiencies. In the time since the enforcement actions were issued, the banking organizations have been implementing the action plans, including enhanced controls, and improving systems and processes. To date, the supervisory review of the mortgage servicers' action plans has shown that the banking organizations under the enforcement actions have implemented significant corrective actions with regard to their mortgage servicing and foreclosure processes, but additional actions need to be taken for some servicers. Federal Reserve supervisory teams will 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

Enforcement Activities

Fair Lending and UDAP Enforcement

With respect to fair lending, 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). The Board also 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. With respect to the Federal Trade Commission Act, which prohibits unfair or deceptive acts or practices (UDAP), the Board has supervisory authority over state member banks, regardless of asset size.

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

With respect to fair lending, 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 must be referred to the 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 ensure that the institution takes all appropriate corrective action.

During 2015, the Federal Reserve referred the following four matters to the DOJ:

• One referral involved discrimination on the basis of race and national origin in violation of the ECOA and the FHA. For secondary market mortgage loans, the lender charged African American and Hispanic borrowers higher prices than similarly situated non-Hispanic white borrowers. Legitimate pricing factors failed to explain the pricing disparities.
• Two referrals involved discrimination on the basis of national origin, in violation of the ECOA. The lenders charged Hispanic borrowers higher interest rates than non-Hispanic borrowers for direct automobile loans. Legitimate pricing factors failed to explain the pricing disparities.
• One referral involved discrimination on the basis of marital status, in violation of the ECOA. The banks improperly required spousal guarantees on mortgage loans, in violation of Regulation B.

In 2015, the Board issued a consent order to cease and desist, required restitution of approximately $24 million, and assessed a civil money penalty of $2.2 million against a non-bank agent for deceptive practices associated with an account that was in violation of the Federal Trade Commission Act. The actions addressed in this order involved several practices that, at various points in the financial aid refund selection process, misled students about significant aspects of the account, including terms and fees.⁷

If there is a fair lending violation that does not constitute a pattern or practice under ECOA or a UDAP violation, the Federal Reserve takes action to ensure that the violation is remedied by the bank. Most lenders readily agree to correct fair lending and UDAP violations, often taking corrective action as soon as they become aware of a problem. Thus, the Federal Reserve frequently 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. When necessary, the Board can bring public enforcement actions.

Given the complexity of this area of supervision, the Federal Reserve seeks to provide clarity on its perspectives and processes to the industry and the public. Fair Lending and UDAP Enforcement staff meet regularly with consumer advocates, supervised institutions, and industry representatives to discuss fair lending and UDAP issues and receive feedback. Through this outreach, the Board is able to address emerging fair lending and UDAP issues and promote sound fair lending and UDAP compliance. For example, in 2015, the Board sponsored a free interagency webinar on fair lending supervision through Compliance Outlook Live, which was attended by more than 6,000 registrants, most of which were community banks.⁸ In addition, DCCA staff participate in numerous meetings, conferences, and trainings sponsored by consumer advocates, industry representatives, and interagency groups.

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 2015, the Federal Reserve issued eight formal consent orders and assessed $125,015 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.

The enactment of two statutes, the Biggert-Waters Flood Insurance Reform Act of 2012 and the Homeowner Flood Insurance Affordability Act of 2014, requires the federal financial institution supervisory agencies to update certain provisions of the federal flood insurance regulations. To that end, the Board and four other federal agencies issued a final rule in July 2015 to incorporate provisions regarding the escrow of flood insurance payments, and the forced placement of flood insurance (see "Consumer Laws and Regulations" later in this section). To assist lenders in understanding and complying with these new regulations, the Federal Reserve hosted in October 2015 an interagency webinar, attended by over 5,000 participants, entitled "Interagency Flood Insurance Regulation Update." The agencies continue work to finalize additional regulations to implement provisions of these statutes related to lenders' acceptance of private flood insurance.

Community Reinvestment Act

The CRA requires that the Federal Reserve and other federal banking and thrift regulatory 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 performance under the CRA;
• considers state member banks' and bank holding companies' CRA performance in context with other supervisory information when analyzing applications for mergers and acquisitions; 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 2015 reporting period, the Reserve Banks completed 195 CRA examinations of state member banks. Of those banks examined, 14 were rated "Outstanding," 178 were rated "Satisfactory," 3 were rated "Needs to Improve," and none were rated "Substantial Non-Compliance."

During the 2015 review period, the Board, the Federal Deposit Insurance Corporation (FDIC), and the OCC reviewed public comments received in response to proposed additional revisions to the Interagency Questions and Answers Regarding Community Reinvestment (Interagency Questions and Answers) that were issued in September 2014.⁹ The proposed revisions focus on issues such as alternative systems for delivering retail banking services; community development, including economic development; and the consideration of qualitative factors such as innovative and flexible lending practices. The agencies have reviewed comments received in response to the proposed revisions and expect to publish revised Interagency Questions and Answers during 2016.

Mergers and Acquisitions

The Federal Reserve analyzes expansionary applications by banks or BHCs, taking into account the likely effects of the acquisition on competition, the convenience and needs of the communities to be served, the financial and managerial resources and future prospects of the companies and banks involved, and the effectiveness of the company's policies to combat money laundering. As part of this process, DCCA evaluates whether the institutions are currently meeting the convenience and needs of their communities and the effectiveness of existing managerial resources, as well as the institutions' ability to meet the convenience and needs of their communities and the adequacy of their managerial resources after the proposed transaction.

The depository institution's CRA record is a critical component of this analysis. The CRA requires the Federal Reserve to consider a depository institution's record of helping to meet the credit needs of its local communities in evaluating applications for mergers, acquisitions, and branches. An institution's most recent CRA performance evaluation is a particularly important, and often controlling, consideration in the applications process because it represents a detailed on-site evaluation of the institution's performance under the CRA by its federal supervisor.

As part of the analysis of managerial resources, the Federal Reserve reviews the institution's record of compliance with consumer protection laws and regulations. The institution's most recent consumer compliance rating is central to this review because, like the CRA performance evaluation, it represents the detailed findings of the institution's supervisory agency.

Less than satisfactory CRA or consumer compliance ratings or other significant consumer compliance issues can pose an impediment to the processing and approval of the application. Federal Reserve staff gather additional information about CRA and consumer compliance performance in many circumstances, including when the financial institution(s) involved in an application have less than satisfactory CRA or compliance ratings or recently identified consumer compliance issues, or when the Federal Reserve receives comments from interested parties that raise CRA or consumer compliance issues. To further enhance transparency about this process, the Board issued guidance to the public in 2014 describing the Federal Reserve's approach to applications and notices, indicating those that may not satisfy statutory requirements for approval of a proposal or that otherwise raise supervisory or regulatory concerns.¹⁰

The Board provides information on its actions associated with these merger and acquisition transactions, issuing press releases and Board Orders for each.¹¹ As part of the 2014 guidance, the Federal Reserve also publishes semiannual reports that provide pertinent information on applications and notices filed with the Federal Reserve.¹² The reports include statistics on the number of proposals that had been approved, denied, and withdrawn as well as general information about the length of time taken to process proposals. Additionally, the reports discuss common reasons that proposals have been withdrawn from consideration.

Because these applications are of interest to the public, they often generate comments that raise various issues for Board staff to consider in their analyses of the supervisory and lending records of the applicants. With respect to consumer compliance and community reinvestment, one of the more common allegations is that either or both the target and the acquirer fail to make credit available to certain minority groups and to low- and moderate-income (LMI) individuals, or when they do extend credit to those borrowers, it is at a higher cost. Commenters also often express concerns about branch closures or the banks' record of lending to small businesses in LMI geographies.

In evaluating the applications and the merits of public comments, the Board considers information provided by applicants and analyzes supervisory information, including examination reports with evaluations of compliance with fair lending and other consumer protection laws and regulations, and confers with other regulators, as appropriate, for their supervisory views. If warranted, the Federal Reserve will also conduct pre-membership exams for a transaction in which an insured depository institution will become a state member bank or in which the surviving entity of a merger would be a state member bank. In October 2015, the Federal Reserve issued guidance providing further explanation on its criteria for waiving or conducting such pre-merger or pre-membership examinations.¹³

During 2015, the Board considered over 100 applications, with topics ranging from change in control notices, to branching requests, to mergers and acquisitions. DCCA staff analyzed the following 16 unrelated notices and applications for transactions involving bank mergers and branching that involved adverse public comments on CRA issues or consumer compliance issues, such as fair lending, which the Board considered and approved:¹⁴

• Comerica Bank, Dallas, Texas, to establish a branch at 31 68th Avenue in Coopersville, Michigan, was approved in January.
• Hillister Enterprises, II, Inc., Umphrey II Family Limited Partnership, both of Beaumont, Texas, and CBFH, Inc., Orange, Texas, to acquire MC Bancshares, Inc. and thereby indirectly acquire its subsidiary, Memorial City Bank, both of Houston, Texas, was approved in January.
• Simmons First National Corporation, Pine Bluff, Arkansas, to merge with Community First Bancshares, Inc., and thereby indirectly acquire First State Bank, both of Union City, Tennessee, and Simmons First National Corporation to merge with Liberty Bancshares, Inc., and thereby indirectly acquire Liberty Bank, both of Springfield, Missouri, were approved in February.
• IBERIABANK Corporation, Lafayette, Louisiana, to acquire Florida Bank Group, Inc., and its wholly owned subsidiary, Florida Bank, both of Tampa, Florida, and IBERIABANK, Lafayette, Louisiana, to merge with Florida Bank and to establish and operate branches at the locations of Florida Bank's main office and branches were approved in February.
• BB&T Corporation, Winston-Salem, North Carolina, to acquire The Bank of Kentucky Financial Corporation and thereby indirectly acquire its wholly owned subsidiary, The Bank of Kentucky, Inc., both of Crestview Hills, Kentucky, was approved in June.
• Sterling Bancorp, Montebello, New York, to acquire Hudson Valley Holding Corporation and thereby indirectly acquire its wholly owned subsidiary, Hudson Valley Bank, National Association, both of Yonkers, New York, was approved in June.
• Cathay General Bancorp, Los Angeles, California, to acquire Asia Bancshares, Inc., and thereby indirectly acquire its wholly owned subsidiary, Asia Bank, National Association, both of Flushing, New York, was approved in July.
• CIT Group, Inc., Livingston, New Jersey, to acquire IMB Holdco LLC and thereby indirectly acquire its wholly owned subsidiary, OneWest Bank, National Association, both of Pasadena, California, was approved in July.
• Empresas Juan Yarur SpA and its subsidiary, Banco de Credito e Inversiones, both of Santiago, Chile, to acquire CM Florida Holdings, Inc., Coral Gables, Florida, and thereby indirectly acquire its subsidiary, City National Bank of Florida, Miami, Florida, was approved in September.
• First Horizon National Corporation, Memphis, Tennessee, to acquire TrustAtlantic Financial Corporation and thereby indirectly acquire its wholly owned subsidiary, TrustAtlantic Bank, both of Raleigh, North Carolina, was approved in September.
• PacWest Bancorp, Los Angeles, California, to merge with Square 1 Financial, Inc., and thereby indirectly acquire its wholly owned subsidiary, Square 1 Bank, and the nonbank subsidiaries of Square 1 Financial, all of Durham, North Carolina, was approved in September.
• M&T Bank Corporation ("M&T"), Buffalo, New York, to acquire Hudson City Bancorp, Inc., Paramus, New Jersey; and by M&T's subsidiary bank, Manufacturers and Traders Trust Company, Buffalo, to merge with Hudson City Savings Bank, Paramus, and retain and operate branches at the locations of Hudson City Savings Bank's main office and branches was approved in September.
• Royal Bank of Canada, Montreal, Canada, and RBC USA Holdco Corporation, New York, New York, to acquire City National Corporation and thereby indirectly acquire its wholly owned subsidiary, City National Bank, both of Los Angeles, California, was approved in October.
• Community Bank System, Inc., DeWitt, New York, to acquire Oneida Financial Corp., and thereby indirectly acquire Oneida Savings Bank, both of Oneida, New York, and State Bank of Chittenango, Chittenango, New York, was approved in November.
• BB&T Corporation, Winston-Salem, North Carolina, to acquire National Penn Bancshares, Inc., and thereby indirectly acquire its wholly owned subsidiary, National Penn Bank, both of Allentown, Pennsylvania, was approved in December.
• Chemical Bank, Midland, Michigan, to establish a mobile branch in several counties in Michigan was approved in December.

Coordination with the Consumer Financial Protection Bureau

During 2015, 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 among the CFPB and the OCC, the FDIC, the National Credit Union Association (NCUA), and the Board of Governors. The agreement strives to minimize unnecessary regulatory burden and to 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.

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.¹⁵ In 2015, the FFIEC member organizations continued to work together on various initiatives.

Updating Examination Procedures under Regulations X, Z, and P

In February, the FFIEC developed examination procedures that incorporated amendments to Regulations X (Real Estate Settlement Procedures Act (RESPA)) and Z (Truth in Lending Act (TILA)), including the CFPB's final TILA-RESPA Integrated Disclosures Rule. The updated interagency Regulation Z examination procedures also incorporated changes associated with the interagency higher-priced mortgage loan appraisal rule and other minor revisions made to the title XIV rules.

The Regulation X and Regulation Z examination procedures were updated again in September to reflect the revised effective date of the TILA-RESPA Integrated Disclosure rule and to incorporate minor, technical updates. In September, the FFIEC also developed updated Regulation P (Privacy of Consumer Financial Information) examination procedures that incorporated a CFPB rulemaking that amended the requirements regarding financial institutions' provision of annual disclosure of privacy practices to customers. ¹⁶ The updated Regulation P examination procedures also reflect the CFPB's recodification in Regulation P of the privacy regulations that were previously issued by six other federal financial institution regulatory agencies as well as clarify requirements and improve readability.

Coordinating Transfer of Regulation C (HMDA) Data Operations

Also in 2015, the FFIEC established a plan for the transfer of Regulation C (Home Mortgage Disclosure Act (HMDA)) data operations to the CFPB in January 2018. The Board will administer and maintain the current HMDA data operations system and continue to collect and process HMDA data through December 2017.

Guidance on Private Student Loans with Graduated Repayment Terms at Origination

In January, the Board, the CFPB, the FDIC, the NCUA, and the OCC, in conjunction with the State Liaison Committee, issued guidance that provides principles that financial institutions should consider in their policies and procedures for underwriting private student loans with graduated repayment terms at origination. The guidance indicates that financial institutions that originate private student loans with graduated repayment terms should prudently underwrite the loans in a manner consistent with safe and sound lending practices. Additionally, the guidance states that financial institutions should comply with all applicable federal and state consumer laws and regulations, including providing disclosures that clearly communicate the timing and the amount of payments to facilitate borrower understanding of loan terms and features.

Guidance to Encourage Financial Institutions' Youth Savings Programs and Address Related Frequently Asked Questions

In February, the Board, the FDIC, the NCUA, and the OCC (as members of the Financial Literacy and Education Commission) and the U.S. Department of the Treasury's Financial Crimes Enforcement Network issued guidance intended to encourage financial institutions to develop and implement programs to expand the financial capability of youth and build opportunities for financial inclusion for more families. The guidance also addresses frequently asked questions that may arise as financial institutions collaborate with schools, local and state governments, nonprofit organizations, and corporate entities to facilitate youth savings and financial education programs. The guidance does not impose additional compliance or examination requirements on financial institutions or examiners, respectively. Rather, the guidance is intended to clarify the applicability of existing legal and regulatory requirements in a manner intended to remove perceived barriers for financial institutions to establish school-based youth savings programs.

Examiner Training

Ensuring that financial institutions comply with laws that protect consumers and encourage community reinvestment is a fundamental aspect 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 division's examiner training function is responsible for the ongoing development of the professional consumer compliance supervisory staff, from an initial introduction to the Federal Reserve System through the development of proficiency in consumer compliance topics sufficient to earn an examiner's commission. DCCA's role is to ensure that examiners have the skills necessary to meet their supervisory responsibilities now and in the future.

Consumer Compliance Examiner Training Curriculum

Currently, the consumer compliance examiner training curriculum consists of five courses focused on consumer protection laws, regulations, and examining concepts. In 2015, these courses were offered in 10 sessions, and training was delivered to a total of 188 Federal Reserve consumer compliance examiners and staff members and 8 state banking agency examiners. These courses are principally conducted by traditional classroom method, and when appropriate, courses are delivered via alternative methods, such as the Internet or other distance-learning technologies. 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.

Early in 2015, a large-scale Federal Reserve System effort was launched to modernize consumer compliance examiner training. A multiyear effort slated for completion in mid-2018, the curriculum modernization began with a transition from traditional classroom-based training to virtual, self-directed, and blended delivery methods designed by experts in adult learning.

To maintain the rigor and excellence of the Federal Reserve's examiner training, the effort will utilize resources with an adult learning background coupled with experienced, dedicated consumer compliance examiners from throughout the Federal Reserve as well as Board of Governors staff. In the second quarter of 2015, staff completed several keys steps: namely, they developed a budget and business plan, identified Federal Reserve personnel to manage and staff the program, held an orientation meeting, and began the analysis of examination tasks performed by examiners and fundamental to curriculum development. As the modernization is fully implemented into 2018, the effort will also incorporate continuing professional development and on-the-job training into the program.

Outreach and Training: Dodd-Frank Act

During 2015, the Federal Reserve collaborated with the other federal banking agencies to offer four webinars (Outlook Live) focused on delivering timely and relevant compliance information to the banking industry, experienced examiners, and other regulatory and supervisory personnel. In May, the Federal Reserve hosted the fifth in a series of CFPB-led Outlook Live webinars dedicated to the CFPB's TILA-RESPA Integrated Disclosures Rule. In July, senior Federal Reserve examiners delivered a webinar addressing a variety of common consumer compliance violations and emerging topics. The FFIEC banking regulatory agencies partnered to offer a webinar update in October on flood insurance regulation and agencies charged with Fair Lending oversight delivered a "hot topics" webinar.¹⁷

Ongoing Training Opportunities

In addition to providing core examiner training, the examiner staff development function emphasizes the importance of continuing lifelong learning. Opportunities for continuing learning include special projects and assignments, self-study programs, rotational assignments, the opportunity to instruct at Federal Reserve 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.

The Federal Reserve continued to offer Rapid Response sessions designed to provide examiners brief updates on emerging issues and deliver training tied to the implementation of new laws, regulations, or supervisory guidance as well as case studies. Five consumer compliance Rapid Response sessions were designed, developed, and presented to Federal Reserve staff during 2015 on the following topics:

• implementation of the new TILA/RESPA regulation (two sessions)
• introduction to the risk-focused supervision of large financial institutions for compliance examiners
• the Fair Lending Tool 5.1
• the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) for consumer compliance examiners

Responding to Consumer Complaints and Inquiries

The Federal Reserve investigates complaints against state member banks and selected nonbank subsidiaries of BHCs (Federal Reserve regulated entities), and forwards complaints against other creditors and businesses to the appropriate enforcement agency. Each Reserve Bank investigates complaints against Federal Reserve regulated entities 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 intake of consumer complaints and inquiries. In 2015, FRCH processed 34,251 cases. Of these cases, 24,804 were inquiries and the remainder (9,447) were complaints, with most cases received directly from consumers. Approximately 5 percent of cases were referred to the Federal Reserve from other agencies.

While consumers can contact FRCH by telephone, fax, mail, e-mail, or online, most FRCH consumer contacts occurred by telephone (61 percent). Thirty-seven percent (12,338) of complaint and inquiry submissions were made electronically (via e-mail, online submissions, and fax), and the online form page received approximately 47,359 visits during the year.

Consumer Complaints

Complaints against Federal Reserve regulated entities totaled 2,106 in 2015. Approximately 4 percent (77) of these complaints were closed without investigation, pending the receipt of additional information from consumers. Nearly 9 percent of the total complaints were still under investigation in December 2015. Sixty-four percent (1,341) involved unregulated practices and 36 percent (765) 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, 2015

Regulation/act	Number
Regulation AA (Unfair or Deceptive Acts or Practices)	12
Regulation B (Equal Credit Opportunity)	29
Regulation BB (Community Reinvestment)	2
Regulation CC (Expedited Funds Availability)	65
Regulation D (Reserve Requirements)	3
Regulation DD (Truth in Savings)	56
Regulation E (Electronic Funds Transfers)	90
Regulation H (National Flood Insurance Act / Insurance Sales)	8
Regulation M (Consumer Leasing Act)	2
Regulation P (Privacy of Consumer Financial Information)	36
Regulation V (Fair and Accurate Credit Transactions)	47
Regulation Z (Truth in Lending)	135
Check21	2
Garnishment Rule	2
Fair Credit Reporting Act	173
Fair Debt Collection Practices Act	49
Fair Housing Act	24
HOPA (Homeowners Protection Act)	4
Real Estate Settlement Procedures Act	23
Right to Financial Privacy	2
Servicemembers Civil Relief Act (SCRA)	1
Total	765

Table 2. Complaints against state member banks and selected nonbank subsidiaries of bank holding companies about regulated practices, by product type, 2015

Subject of complaint/product type	All complaints		Complaints involving violations
	Number	Percent	Number	Percent
Total	765	100	29	3.8
Discrimination alleged
Real estate loans	19	2.5	1	0.1
Credit Cards	0	0	0	0
Other loans	5	0.7	0	0
Nondiscrimination complaints
Checking accounts	177	23.1	3	0.4
Real estate loans	94	12.3	11	1.4
Credit cards	292	38.2	2	0.3
Other	178	23.3	12	1.6

Complaints about Regulated Practices

The majority of regulated practices complaints concerned credit cards (38 percent), checking accounts (23 percent), and real estate (12 percent).¹⁸ The most common checking account complaints related to insufficient funds/overdraft charges and procedures (28 percent), funds availability not as expected (21 percent), disputed withdrawal of funds (10 percent), and alleged forgery/fraud/embezzlement/theft (10 percent). The most common real estate complaints by problem code related to debt collection/foreclosure concerns (14 percent); disputed rates, terms, and fees (11 percent); and payment errors/delays (7 percent). The most common credit card complaints related to inaccurate credit reporting (47 percent), bank debt-collection tactics (11 percent), and payment errors/delays (9 percent).

Twenty-four regulated practices complaints alleging discrimination on the basis of prohibited borrower traits or rights were received in 2015. Twelve discrimination complaints were related to the race, color, national origin or ethnicity of the applicant or borrower. Twelve discrimination complaints were related to either the age, handicap, familial status, or religion of the applicant or borrower. Of the closed complaints alleging discrimination based on a prohibited basis in 2015, there were no violations related to illegal credit discrimination.

In 76 percent of investigated complaints against Federal Reserve regulated entities, evidence revealed that institutions correctly handled the situation. Of the remaining 24 percent of investigated complaints, 4 percent were deemed violations of law, 3 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 2015, the Board received 1,341 complaints against Federal Reserve regulated entities that involved these unregulated practices. The majority of the complaints were related to electronic transactions/prepaid products (31 percent), credit cards (21 percent), checking account activity (15 percent), and commercial loans/leases (4 percent).

Complaint Referrals

In 2015, the Federal Reserve forwarded 7,336 complaints against other banks and creditors 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.

The Federal Reserve also forwarded 23 complaints to the Department of Housing and Urban Development (HUD) that alleged violations of the Fair Housing Act.¹⁹ The Federal Reserve's investigation of these complaints revealed no instances of illegal credit discrimination and were closed in 2015.

Consumer Inquiries

The Federal Reserve received 24,804 consumer inquiries in 2015 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 Laws and Regulations

Throughout 2015, 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. This included drafting regulations and issuing interpretations and compliance guidance for the industry and the Reserve Banks.

Flood Insurance Rule

In July 2015, the Board, along with the Farm Credit Administration, the FDIC, the NCUA, and the OCC jointly issued a final rule to amend regulations pertaining to loans secured by residential improved real estate or mobile homes located in special flood hazard areas.²⁰ The rule implements provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters Act) relating to forced placement of flood insurance and provisions of the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA) relating to escrowing flood insurance payments and the exemption of certain detached structures from the mandatory flood insurance purchase requirement. HFIAA amends the escrow provisions of the Biggert-Waters Act.

In issuing the final rule, the agencies implemented the Biggert-Waters Act force placement of flood insurance provisions to clarify that lenders have the authority to charge a borrower for the cost of flood insurance coverage commencing on the date on which the borrower's coverage lapsed or became insufficient. The rule also stipulates the circumstances under which the lender must terminate force-placed flood insurance and sets forth documentary evidence of flood insurance that a lender must accept.

In accordance with HFIAA, the final rule requires regulated lending institutions to escrow flood insurance premiums and fees for loans made, increased, extended, or renewed on or after January 1, 2016, unless the regulated lending institution or a loan qualifies for a statutory exception. In addition, for outstanding residential loans made before that date, the rule requires institutions to provide borrowers the option to escrow flood insurance premiums and fees. To facilitate compliance, the agencies' rule includes new and revised sample notice forms and clauses concerning the escrow requirement and the option to escrow.

Consistent with HFIAA, the rule eliminates the legal requirement to purchase flood insurance for a structure that is a part of a residential property located in a special flood hazard area if that structure is detached from the primary residential structure and does not also serve as a residence. Under HFIAA, however, lenders may nevertheless require the purchase of flood insurance for such structures to protect the value of the collateral securing the loan.

In a separate rulemaking, the agencies will address provisions of the Biggert-Waters Act related to lenders' acceptance of private flood insurance.

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Consumer Research and Emerging-Issues and Policy Analysis

Throughout 2015, DCCA analyzed emerging issues in consumer financial services policies and practices in order to understand their implications for the market-risk surveillance and supervisory policies that are core to the Federal Reserve's functions, as well as to gain insight into consumer financial decisionmaking.

Researching Issues Affecting Consumers and Communities

In 2015, DCCA explored various issues related to consumers and communities by convening experts, conducting original research, and fielding new and ongoing surveys. The information gleaned from these undertakings provided insights into the factors affecting consumers and households.

Consumer Behavior Research Surveys

In order to better understand consumer decisionmaking in the rapidly evolving financial services sector, DCCA periodically conducts Internet panel surveys to gather data on consumers' experiences and perspectives on various issues of interest.

With respect to ongoing surveys, DCCA conducted its annual survey of 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. The survey was also 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 these surveys, conducted in the winter, are released each spring in the report Consumers and Mobile Financial Services. Results from the survey conducted in November 2014 were published in March 2015.²¹ For the fifth survey, conducted in December 2015, results will be published in March 2016. Given the rapid pace of developments in the mobile financial services market, DCCA plans to consider what has been learned from the five surveys to determine the future direction of the research in this area.

In addition, results from DCCA's newest survey in the financial services area--the Survey of Household Economics and Decisionmaking (SHED)--were published in the Report on the Economic Well-Being of U.S. Households in 2014, released in May 2015. DCCA launched the survey to better understand consumer decisionmaking in the wake of the Great Recession, with the aim to capture a snapshot of the financial and economic well-being of
U.S. households. In doing so, the SHED collects information on households that is not readily available from other sources or is not available in combination with other variables of interest. Key findings from the 2014 survey include:

• Individuals and their families experienced only mild improvements in their overall well-being, but they are increasingly optimistic about the trajectory of their well-being going forward.
• Forty-nine percent of part-time workers and 36 percent of all workers would prefer to work more hours at their current wage if they were able to do so.
• Twenty-nine percent of respondents expect their income to be higher in the year after the survey than in the year prior to the survey.
• Most renters express a preference for homeownership. However, many renters--and especially lower-income renters--indicate that financial barriers to homeownership prevent them from purchasing a home.
• Forty-seven percent of respondents say they either could not cover an emergency expense costing $400, or would cover it by selling something or borrowing money.
• Twenty percent of respondents report that their spending exceeded their income in the 12 months prior to the survey.
• Sixty percent of respondents indicate they are either somewhat or very confident they would be approved for a mortgage if they were to apply.
• Just under one-third of those who applied for credit in the 12 months prior to the survey were turned down or given less credit than they applied for.
• Many individuals report that they are not planning for retirement and not saving for retirement.
• Across a range of dimensions, individuals in lower-income households express a higher frequency of financial challenges.

System Research Conference

In April 2015, DCCA staff organized (in partnership with the Federal Reserve Bank of St. Louis) the ninth biennial Federal Reserve System's Community Development Research Conference. Over the years, this unique event has aimed to bridge the gap among research, policy, and practice on key issues facing the country. The 2015 conference informed a robust public conversation about economic mobility. The conference organizers used the broad theme of economic mobility to advance understanding about how people and communities get ahead, where impediments exist, how factors such as inequality play a role, and what has changed over time. (See box 1 for more details.) Emerging research was presented in a dialogue with policymakers and community practitioners who can utilize the lessons gleaned from research.

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, Policy Analysis staff analyze and anticipate trends, lead division-wide issues working groups, and organize expert roundtables to identify emerging consumer risks and inform policy recommendations.

In 2015, the Policy Analysis team developed analyses on a broad range of issues that have the potential to pose risks in consumer financial service markets. Also, the team contributed to the planning for the six public outreach meetings held as part of decennial review of banking regulations under the Economic Growth and Regulatory Paperwork Reduction Act.

Student Loan Forum

Though research suggests that the lifetime returns to completing a college degree are, on average, positive and substantial, these returns largely depend upon program completion, institution attended, and subject matter studied. In fact, many students take on debt that they are later unable to repay. In October 2015, the Policy Analysis team hosted an invitation-only forum for researchers and college administrators to discuss issues related to the financial decisionmaking of students, in particular, taking on student debt. Current research presented at the forum focused on how students and their parents gather information about enrolling in and paying for college. For example, studies show that Hispanics are more sensitive to distance from home relative to blacks or whites when it comes to choosing where to apply and that a disproportionate share of blacks enroll in for-profit schools, which tend to have lower expected returns than public and nonprofit institutions.

As for policy implications, participants noted that many students are not aware of how much they borrow to pay for college and cannot accurately estimate how large their monthly payments will be once in repayment. Participants also discussed strategies for more effectively delivering financial information to borrowers and identified opportunities for improving the existing student loan repayment system.

Monitoring Trends in Auto Lending

The Policy Analysis team continued to monitor developments in auto lending. Federal Reserve research shows a solid recovery of the auto market post-crisis and growth in auto loan originations. However, concerns have been raised among consumer advocates and the media that increased lending to below-prime borrowers and the use of high-cost loans and longer loan terms could result in financial hardship for households struggling with living expenses and other debt obligations.

Small Business Borrowers and Alternative Lending

Reports suggest more small businesses are turning to online alternative lenders for working capital. These nonbank lenders offer small-dollar cash advances and short-term loans. Many provide funds in days
or even hours, using data-driven approaches for underwriting and pricing. While promising for expanding access to credit, the industry also raises potential risks for borrowers, as these products can be considerably more expensive than traditional credit. Typical quantitative surveys do not probe small businesses' trust, understanding, or perceptions of these alternatives. Together with colleagues at the Federal Reserve Bank of Cleveland, the Board's Policy Analysis team conducted online focus groups of potential small business borrowers to help shed light on these issues. Online focus groups are an effective way to convene geographically dispersed small business respondents--a group particularly hard to reach face-to-face.

A report, Alternative Lending through the Eyes of Mom & Pop Small Business Owners, was published in August 2015.²² The study revealed that online lender websites are appealing, but raise data security and privacy concerns. Furthermore, small businesses find comparing products difficult using information typically presented on lenders' websites. Finally, small businesses appear to view "online" as a place, rather than a category of lending--a finding with important implications for future quantitative work on this topic.

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Community Development

The Federal Reserve System's Community Development function promotes economic growth and financial stability--particularly for underserved households and communities--by informing research, policy, and action. As a decentralized function, the Community Affairs Officers 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 to promote and coordinate Systemwide priorities.

Exploring Experiences and Expectations in the Labor Market

The fragility and unevenness of the economic recovery has motivated many individuals (entrant, current, and former workers) to search for remedies and stopgap measures for making ends meet. In 2015, the Community Development staff at the Federal Reserve fielded two surveys to explore the experiences and expectations of individuals in the labor market. Staff reviewed existing research and engaged external research and policy experts to identify the potential economic implications of changing nature in these labor market trends. This initial exploration raised several questions about the experiences of workers that were not fully explained by existing data.

The Survey of Enterprising and Informal Work Activity examined the extent to which individuals are increasingly acting as their own agents of employment rather than employees of a particular firm to supplement or supplant income. The survey measures the incidence of various income-generating activities and their economic importance to the individuals that engage in them. It also assesses the relative frequency and importance of work activities over time, particularly in response to the growing income inequality and difficulty in securing employment with living-wages and secure benefits. Finally, the survey identifies the characteristics of these entrepreneurial individuals and the corresponding types of activities they pursue.

Similarly, the Survey of Young Workers examines the perceptions and experiences of adults--ranging in age from 18 to 30--in the labor market. The survey attempts to understand the connection between educational choices and employment opportunities. It captures the satisfaction of young workers in their jobs and in their prospects of upward mobility. Lastly, the survey examines the respondents' outlook on the economy and the drivers behind their optimism and pessimism.

Reports that summarize the findings from these surveys, as well as frame future research and policy considerations by the Federal Reserve, will be forthcoming in 2016.

Engaging the Board on Community Development Issues and Concerns

In 2015, DCCA led the formation of the Federal Reserve Board's new Community Advisory Council (CAC), which the Board created to serve as an advisory committee on issues affecting consumers and communities (see box 2).²³ The CAC will complement two of the Board's other advisory councils--the Federal Advisory Council and the Community Depository Institutions Advisory Council--whose members represent depository institutions. (For a list of CAC members in 2015, as well as members of other Board advisory councils, see section 14, "Federal Reserve System Organization.")

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References

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