I have spent over 30 years addressing compliance issues and dealing with regulators. Historically, though bankers and examiners were on different sides of the table, the relationship was pretty amicable. If an examiner found a significant compliance error, he or she would bring it to the bank’s attention, write it up in the examination report and tell the bank not to do it again. Unless the violation was really egregious, there was seldom a fine. Now, it seems to have changed. The relationship has become adversarial if not antagonistic. News flash to the regulators and examiners. Bankers are folks just like you. They are your neighbors, sit next to you in church and coach your kid’s little league team. More important, if it were not for them, you would not have a job.
If an institution is doing something that is really outlandish, go after it. I have no problem with that. On the other hand, don’t take something I have been doing for years without criticism and now tell me it is a UDAAP violation and fine me millions of dollars. A good example of how to do it was the automated overdraft systems. The regulators felt that what the industry was doing was in many cases deceptive and abusive. In some respects, I cannot disagree. But, they didn’t go out and fine every bank that had a program. They published their list of best practices and gave banks sufficient time to conform. Now, don’t misunderstand me, bankers didn’t necessarily like what the regulators did, but that is life. It was a far better resolution than what we see now.
It is pretty obvious that the new regulatory attitude began with the CFPB. It seems that it was formed with a chip on its shoulder. Bankers are rascally, evil people, and we are going to punish them. Then, the other regulators recognized the CFPBʼs attitude and decided that they didn’t want to be the wimp in the schoolyard, and their attitude began to change as well. Regulation and leadership through guidance and assistance is far more productive than regulation through fear, which is what we are approaching. I know that a lot of regulators read this article. I hope that they will take a moment to reflect on what their real purpose is and thereby have an epiphany of attitude adjustment.
A couple of things from the courts. First, when is an electronic payment on a loan received? A loan servicer had a policy of crediting an ACH authorization to make a loan payment two business days after it was received. In this case, a borrower authorized the servicer to debit his or her account at another bank by ACH to make the current payment due one day before a late penalty would be imposed. The servicer credited the payment two days later and imposed the late fee. The court said no. The ACH authorization was similar to a check written on another bank, and it had to be credited when received. Alternatively, if the customer authorizes his or her bank to pay the servicer, such as through a bill payment system, the payment is not received until it is actually received, and it need not be credited until that time.
The second issue involves fee-splitting and what is an unearned fee under RESPA. In this case, a lender hired a closing service for $500 to handle the loan closing. In turn, the closing service hired an attorney for $300 to do all of the work. The borrower claimed that the $200 retained by the closing service was an unearned fee and illegal fee- splitting. The court said no. Just the selection of an attorney was a service; therefore, the closing service company was entitled to compensation.