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    Dodd-Frank Update

    Aug 13, 2013
    As introduced in last month’s policy brief, the Dodd-Frank Wall Street Reform and Consumer Protection Act was the most sweeping reform of the financial industry since the post-Great Depression era. The act contained more than 300 provisions that required or permitted new rules from federal government agencies, and established government entities like the Consumer Financial Protection Bureau (CFPB). The CFPB has specific guidance over mortgage rules laid out in the bill, and has put out additional rules that have been carried out in the form of seven programs so far.

    As introduced in last month’s policy brief, the Dodd-Frank Wall Street Reform and Consumer Protection Act was the most sweeping reform of the financial industry since the post-Great Depression era. The act contained more than 300 provisions that required or permitted new rules from federal government agencies, and established government entities like the Consumer Financial Protection Bureau (CFPB). The CFPB has specific guidance over mortgage rules laid out in the bill, and has put out additional rules that have been carried out in the form of seven programs so far.

    These rules may represent new duties and challenges for records management. Specific to the CFPB, one of the programs put into practice is the Ability-To-Repay and Qualified Mortgage (ATR/QM) Rule. The provision requires mortgage lenders to make a “reasonable, good-faith determination before or when [the agency] consummates a mortgage loan that the consumer has a reasonable ability to repay the loan.” This is intended to serve as one important way to avoid another “housing bubble” where mortgages were provided to borrowers who could not make the payments. This bubble led to many losing their homes during the financial collapse.

    For recordkeeping practices, the rule requires records to be kept for “almost all closed-end consumer credit transactions secured by a dwelling, including any real property attached to the dwelling.” Examples of these are loans made to consumers and secured by residential structures that contain one to four units, including condominiums and co-ops. The rule requires an agency or a business to retain evidence that it has complied with the ATR/QM rule, including the prepayment penalty limitations, for three years after consummation. The CFPB also suggests that agencies and businesses keep records longer for business purposes. Keeping these records puts the burden on records managers to identify and retain records and documents they determine to be evidence of compliance.

    To assist with implementation, the CFPB put out a compliance guide here. In it, the bureau suggests several documents that can be relied upon as third-party records. It cites records from government organizations such as letters from a tax authority at the federal, state, or local government level detailing the consumer’s income, benefits, or entitlements; statements provided by a cooperative, condominium, or homeowners association; a ground rent or lease agreement; credit reports; statements for student loans, auto loans, credit cards, or existing mortgages; court orders for alimony or child support; copies of the consumer’s federal or state tax returns; W-2 forms or other IRS forms for reporting wages or tax withholding; payroll statements; military leave and earnings statements; financial institution records, such as bank account statements or investment account statements reflecting the value of particular assets; records from the consumer’s employer or a third party that obtained consumer specific income information from the employer; check-cashing receipts; and remittance-transfer receipts.

    Finally, the bureau suggests that third-party updates may be necessary to obtain required information or verifications, update disclosures, underwrite software, for compliance and quality-control systems and processes; and to update records-management protocols.

    The rule was first issued on January 10, 2013, and is set to take effect on January 10, 2014. The CFPB also put out a concurrent proposal to amend the rule. On the concurrent proposal, the CFPB is currently accepting comments.  

    The Washington Policy Brief is an online advisory that contains brief summaries of recent legislative and regulatory issues that may affect the records and information management profession. Further information about the issue is accessed by clicking on the link provided at the end of each summary.

     

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