The Consumer Financial Protection Bureau just made it easier for ordinary citizens to sue banks by restricting how they can use mandatory arbitration to block class-action lawsuits, according to Bloomberg. But the decision – inspired by a 2015 investigative series in the New York Times about how US companies, particularly credit card companies and payday lenders, abuse the practice – likely won’t stay on the books for long. As the LA Times writes:

It’s all but certain that Republican lawmakers in control of the House and Senate will move quickly to overturn the rule as part of their ongoing efforts to cripple the consumer-watchdog agency and create a more business-friendly regulatory landscape.”

Clauses requiring arbitration to settle disputes are inserted routinely in contracts for credit cards, payday loans and other financial products. They typically prevent consumers from filing lawsuits or banding together in class actions.

“Arbitration clauses in contracts for products like bank accounts and credit cards make it nearly impossible for people to take companies to court when things go wrong,” CFPB Director Richard Cordray said in a statement.

“These clauses allow companies to avoid accountability by blocking group lawsuits and forcing people to go it alone or give up. Our new rule will stop companies from sidestepping the courts and ensure that people who are harmed together can take action together.”

From the time they formally receive the ruling, lawmakers have 60 legislative days to overturn the bureau’s decision. Republicans have been using the Congressional Review Act, a little-known provision, to undo more than a dozen Obama-era regulations during the closing days of his presidency, including the CFPB’s plans to implement tougher standards for prepaid debit cards.

“As a matter of principle, policy and process, this anti-consumer rule should be thoroughly rejected by Congress,” Representative Jeb Hensarling, the Texas Republican who leads the House Financial Services Committee, said in a statement.

Congress isn’t the only body that’s skeptical of the ruling: In an unusual move, the head of a key banking regulator wrote to Cordray to raise concerns about it. Keith Noreika, the acting Comptroller of the Currency, asked that the CFPB share data used to develop its arbitration rule, according to a letter dated Monday that was obtained by Bloomberg.

“We would like to work with you and your staff to address the potential safety and soundness implications of the CFPB’s arbitration proposal,” Noreika said in the letter. “That is why I am requesting the CFPB share its data.”

Noreika cited a section of the Dodd-Frank Act that gives the Financial Stability Oversight Council – a panel of regulators headed by the Treasury secretary – power to set aside any CFPB rule that can be shown to put the safety of the wider financial system at risk.

Our new rule ensures that groups of people harmed by the same financial products can take action together. pic.twitter.com/rXYzHz67ea

— consumerfinance.gov (@CFPB) July 10, 2017

However, studying the fairness of arbitration clauses appears to be well within the bureau’s remit: Dodd-Frank says the CFPB “may prohibit or impose conditions or limitations on the use” of arbitration clauses if it determines that restricting such provisions “is in the public interest and for the protection of consumers,” according to the LA Times.

During its study, the CFPB found that hundreds of millions of contracts include arbitration provisions and that companies have used the clauses to keep fights out of court almost two-thirds of the time. Very few consumers even consider bringing individual actions against financial-service providers in court or in arbitration.

Despite the rule’s near-certain erasure, Christine Hines, legislative director for the National Assn. of Consumer Advocates, told the LA Times that the CFPB isn’t thumbing its nose at Republican lawmakers who have insisted for years that the agency is a rabid regulatory pit bull in need of either a very short leash or a trip to a farm.

“The agency has to continue doing its job,” she said, “even though there are very anti-consumer people in power.”

Other consumer advocates echoed that sentiment.

“The rule will help to combat the culture of companies profiting from charging illegal fees and committing other crimes against their customers,” said Rohit Chopra, senior fellow at the Consumer Federation of America.

Said Lisa Donner, executive director of Americans for Financial Reform: “The consumer agency’s rule will stop Wall Street and predatory lenders from ripping people off with impunity, and make markets fairer and safer for ordinary Americans.”

The new rule will cover new agreements for products such as credit cards, auto loans, credit reports and even mobile phone services that provide third-party billing. Companies can still include arbitration clauses in contracts, but they must state that those can’t be used to stop individual consumers from joining class-action cases.

According to Bloomberg, it is also possible that industry groups will sue to overturn the CFPB rule. Groups including the US Chamber of Commerce have said arbitration is a valuable tool to prevent frivolous, expensive lawsuits that often don’t do much to benefit borrowers. Meanwhile, consumer advocates say restricting arbitration clauses will deter bad actors and force companies to reconsider certain activities because consumers will be more inclined to sue.

Source:  http://www.zerohedge.com/news/2017-07-11/cfpb-makes-it-easier-customers-sue-banks?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29

Entrepreneurs and small businesses are a vital part of the U.S. economy. The nation’s 28 million small businesses account for 54 percent of all domestic sales, provide 55 percent of all jobs and have added 8 million jobs to the economy since 1990, according to the U.S. Small Business Administration (SBA).

It’s no coincidence this growth has occurred in tandem with an increase in the accessibility and range of SBA loan programs. Why should commercial mortgage brokers care? Because SBA loans provide a unique opportunity for brokers to expand their offerings beyond conventional mortgage loans.

With an SBA loan option for their clients, mortgage brokers can offer businesses access to the same type of long-term, fixed-rate financing enjoyed by larger companies. Interest rates are equivalent to favorable bond-market rates and are backed by an SBA loan guarantee.

Each SBA loan program is structured under government-directed guidelines to include maximum loan amounts and interest rates, guarantee fees, use of proceeds, eligibility criteria and more. Matching clients to the right program requires a deep understanding of these intricacies.

Plus, SBA requirements are constantly changing. Brokers need to be plugged in to keep up, so the support of a team of SBA loan specialists is a critical first stage of client engagement.

What are SBA loans?

SBA loans are long-term, low-interest loans tailored to small businesses, the definitions of which vary widely among industries. Small-business loans also are backed by a government guarantee, alleviating risk for lenders and opening doors to financing for businesses that have struggled to get a traditional loan.

“ SBA loan programs have capped interest rates and offer lower downpayments, making upfront costs more affordable. ”

SBA loan programs have capped interest rates and offer lower downpayments, making upfront costs more affordable. They also feature longer repayment terms, which reduces monthly payments. The programs include refinancing options to reduce debt and release cash flow; programs for providing easier access to credit for so-called “high-risk” industries like construction, gas stations and home-based businesses; and programs that help free up capital for real estate investments.

The SBA 7(a) program, for example, with loans up to $5 million and fees as low as zero percent, can be used to purchase real estate or equipment — including the cost of construction or renovation — purchase an existing business, or to refinance debt.

Certified Development Company (CDC)/504 loans are ideal for businesses looking to expand through investments in land or buildings — but not speculation or investments in rental real estate. The CDC/504 loan provides long-term, fixed-rate financing up to $5.5 million. Soft costs like architectural and legal fees also can be rolled into the loan. Downpayments as low as 10 percent are a big attraction of this program, because banks often require 20 to 30 percent of the purchase price. That downpayment is based on total project costs in most cases, which includes renovations and soft costs. That allows a business to preserve cash for working capital.

Advantages for mortgage lenders include lower risk, because the SBA guarantees the loan; a lower loan-to-value (LTV) ratio; Community Reinvestment Act credits; and being able to offer another option for keeping growing, small-business clients happy. Essentially, SBA loans offer a valuable financing option that enables brokers to expand offerings to eligible businesses beyond their current purview by teaming with an SBA lending partner.

Work with the right lender

It’s important to understand that the SBA lending landscape is not equal. To service small businesses more efficiently, the SBA has three categories of lender programs – General Partner (GP), Certified Lender Partner (CLP) and Preferred Lender Partner (PLP).

PLP status is the most desirable accreditation that an institution can receive because it gives the lender the authority to make the final credit decision, simplifying and expediting the loan-approval process for all parties. Nonpreferred lenders must submit loans to the SBA for approval, a process that can take several weeks, delaying approvals and yields.

Achieving PLP status requires lenders to have in-house staff expertise and a track record of success in the processing and servicing of SBA loans. To ensure a successful SBA loan application for your client, it’s recommended that mortgage brokers work with an SBA lender that has PLP status.

SBA loans offer many unique opportunities for lenders and brokers alike, but can be complex, and require significant resources and expertise. Here’s a breakdown of the process:

• Loan application and underwriting. Applying for, structuring and underwriting SBA loans is a multifaceted process handled by a lender, not the SBA. The lender must determine a borrower’s eligibility, complete a credit analysis and package paperwork, all in accordance with SBA requirements. Brokers should work with lenders that have clear policies on credit parameters and what defines an “acceptable” loan.
• Staffing and skill sets. To participate fully and successfully in SBA financing, lenders and brokers must understand the market well by investing in training and specialized staff, as well as integrating new risk and compliance protocols to ensure they meet government requirements. Small businesses are encouraged to seek out lenders with a solid track record of processing SBA loans. Again, this makes it critical for brokers to work with an SBA lender, preferably one with PLP status.
• Loan servicing. Once the SBA approves a loan, lenders must administer it in accordance with federal guidelines and regulations. Complex standard operating procedures (SOPs) govern the 7(a) and CDC/504 programs. If a lender fails to demonstrate continued ability to evaluate, process, close, disburse, service and liquidate small-business loans, the SBA may refuse or revoke its SBA lending status.

Real estate red flags

Even with the right SBA partner, there are several proactive steps that mortgage brokers can take to ensure a winning SBA loan application and bring additional value to their client relationships.

Appraisals can trip up any real estate deal. With construction costs rising each year and the potential for material costs to change during the approval process, financial projections can easily go awry. Work with a good appraiser or get multiple appraisals to ensure you’re reflecting the big-picture financials.

Another surprise that can ruin any deal is an environmental issue, such as mold, radon or other land contaminants, as well as a failure to comply with applicable environmental laws. Work with an environmental consultant to identify and manage these problems before they derail your client’s property transfer or financing transaction.

Whether a client is looking to buy an existing facility or construct a larger facility, it’s likely they already have business debt tied up in existing assets. Rather than increase their debt or hurt their chances of being approved for a loan, become knowledgeable about how SBA refinancing options can consolidate existing debt. Work with your client to understand their debt and how they can save money through refinancing.

• • •

Partnering with an SBA lender is an essential step in not only ensuring your clients are matched with the right loan, but that the loan has the best chance of being approved by the SBA and serviced in accordance with SBA requirements. Sending along a loan referral also can pay dividends in terms of your client relationship and the added bonus of a nice referral fee. •

Source: http://www.scotsmanguide.com/Commercial/Articles/2017/07/Become-an-SBA-Loan-Superhero/?utm_source=Commercial-TopArticles0717&utm_medium=email&utm_campaign=Newsletters

When you talk to Jeffery Lee, it’s hard not to hear how excited the chief marketing officer of Seacoast National Bank is about the power of big data. The same goes for Robert Stillwell, the head of analytics at the $4.7 billion asset bank based in Stuart, Florida. With a small handful of colleagues in Seacoast’s marketing department, Lee and Stillwell have combined data analytics and marketing automation software to gain insights into their customers and run dozens of targeted marketing campaigns that, in some cases, generate returns on investment in excess of 100 percent.

Seacoast proves that a bank doesn’t have to be big to benefit from big data. In Lee’s estimation, in fact, just the opposite is true. “Our size is an advantage because our data isn’t trapped in a bunch of different silos,” says Lee. “We have one core banking provider, everything flows through it, and the data is readily available.” This eliminates the technical challenge of wrangling data from disparate sources. It also means that Seacoast “doesn’t have to fight battles about who owns which data,” explains Lee.

The chief information officer of Memphis, Tennessee-based First Horizon National Corp., the holding company for First Tennessee Bank, says the same thing. “This may be an advantage of smaller institutions,” says Bruce Livesay. “Because our environment is less complex, we can use a single tool across all of our channels. And it’s easier for us to do that than the big guys,” he continues, referring to the $29 billion asset bank’s data-driven marketing platform.

Of 13 global and regional banks surveyed by consulting firm McKinsey & Co. recently, almost every one listed advanced analytics among its top five priorities, with many investing heavily in it already. Yet, the expected results haven’t materialized. The problem is that these “efforts remain unconnected and subscale; they have not yet tied together their disparate efforts into a single, unified business discipline.”

Costs no longer serve as an impediment either, even for banks without hundreds of billions of dollars in assets. “The cost of software is unbelievably attainable. I had no idea it had dropped that much,” says Lee, who worked for a major credit card company before joining Seacoast in 2013. This includes the bank’s marketing automation platform as well as its analytics software.

“Because the [cost of] technology required to gather and store relevant data has gone down, it is no longer cost prohibitive for small and midsized financial institutions to get into big data analytics,” says David Macdonald, vice president of financial services at SAS, a leading company in business analytics software and services. Livesay agrees. While he wouldn’t disclose how much First Tennessee’s data-driven marketing automation platform from IBM costs, he made it clear that it “more than pays for itself.”

A direct mail campaign conducted by Seacoast over the past year offers a case in point. By analyzing branch visits, the bank identified customers who frequented branches to deposit checks instead of using mobile deposit. To encourage these customers to switch, Seacoast sent checks for nominal amounts to them with instructions on mobile deposit. Seven percent responded by permanently changing their behavior. That’s seven times the conversion rate one would ordinarily expect from a campaign that isn’t informed by advanced analytics, says Lee.

But if scale and cost aren’t impediments, what’s keeping smaller banks from taking better advantage of their data?

The answer is: Talent. Seacoast hired Stillwell, who had been using data analytics software for 15 years when he joined the bank in 2014. Like Lee, Stillwell came from the credit card industry, which has a reputation of being especially effective purveyors of data. Stillwell started on a shoe-string budget, with analytics software from SAS that ran on a personal computer. This worked as a proof of concept, giving Stillwell the tools and programming language needed to analyze large amounts of data without requiring a substantial investment. Seacoast then upgraded to a more expensive server-run version a year later.

Stillwell has since gone on to use the software to develop a customer lifetime value model that estimates per-customer profitability—it also specifies why a customer is or isn’t profitable. He built an opportunity-sizing engine, too, which identifies the next best product to sell a customer based on the product’s profitability and the customer’s current product portfolio. The bank is now combining these tools with its marketing automation platform to complete and automate the circle between insights and execution.

Once this happens, Lee believes Seacoast will be able to scale up its highly targeted marketing campaigns from the 40 or so it runs right now to more than 10 times that amount. “Most banks our size are doing one marketing campaign a quarter; we’re doing 40 at all times,” says Lee. “And we could be running 400 campaigns.”

Seacoast’s marketing department is now rolling these tools and insights out to a broader audience at the bank. Stillwell built a user interface atop the analytics platform to enable remote access, and the bank has begun educating frontline employees about how the insights from the data can help serve customers more effectively. It does so by offering insight into the products and services each of Seacoast’s customers would benefit most from, as well as the best channels over which to engage them, explains Lee.

These efforts have been well received, though they have at times run up against long-held assumptions. This is especially true in the context of customer profitability. “You ask someone in the branch who their best customer is, and they say it’s the person who comes in every day,” says Lee. But because it costs a bank more to service these customers compared to those who bank remotely, Seacoast’s profitability model comes to the opposite conclusion. “It’s a big cultural change because there are perceptions that don’t always align with what the data tells you,” says Lee.

First Tennessee saw a similar cultural change after implementing its own customer profitability model. “There’s absolutely no doubt that it’s changed the culture of the company. Most banks can’t give these kinds of insights to their bankers,” says Livesay. “The fact that we can has changed the behavior of our sales people. It prioritizes which customers they should be talking to and informs those conversations.”

At the end of the day, there’s no question that big banks derive many benefits from their massive balance sheets, but there are some areas where scale can be a disadvantage. The timely implementation of a fruitful data analytics program may be one of them.

Source: http://www.bankdirector.com/index.php/magazine/archives/fintech-issue/small-banks-using-big-data

“When the HMDA rule was originally enacted in 1975, it required depository and non-depository institutions to collect and report data about mortgage originations. On October 15, 2015, the scope of the rule changed—expanding reporting coverage for non-depository institutions, increasing transactions covered, and increasing data elements to report. The new HMDA rule now requires 48 data points be collected, recorded and reported: 25 are new data points (including total loan costs or total point and fees, automated underwriting system, and open-end line of credit) and 14 are modified from the previous rule.”[1]

Enough said. With this type of expansive change to the HMDA-reporting and -recordkeeping rules, there are bound to be questions. Here’s a sample.

Q: For HMDA recordkeeping and reporting, what’s the story on HELOCs?

A: Beginning January 1, 2018, covered loans under the HMDA rule will include not just closed-end mortgages, but also “open-end lines of credit secured by a dwelling” (i.e., HELOCs). Not every financial institution will be subject to the rule. Institutions that originated at least 25 closed-end mortgages or 100 HELOCs in each of the two preceding calendar years will be required to collect, record, and report HELOC data under HMDA.

Q: We have always relied on the Federal Financial Institutions Examination Council’s software (reporting to the Federal Reserve Board) each year for HMDA reporting. We’ll be able to continue using it, right?

A: There are no changes to the submission process for HMDA data collected by financial institutions in 2016. Financial institutions will file HMDA data with the Federal Reserve Board (FRB) using the FRB’s instructions, file specifications, and edits familiar to HMDA users. Please visit the FFIEC website for resources to help you file.

There is a new data submission process beginning with HMDA data collected by financial institutions in or after 2017. Financial institutions will file HMDA data with the Consumer Financial Protection Bureau (CFPB). The HMDA agencies have agreed that filing HMDA data collected in or after 2017 with the CFPB will be deemed submission to the appropriate Federal agency. You should refer to the FFIEC and the CFPBwebsites for resources to help you file.

Q: What if we need to resubmit HMDA data following the change to the reporting process?

A: There is a new data resubmission process beginning with HMDA data collected by financial institutions in or after 2017. Financial institutions will resubmit HMDA data collected in or after 2017 by filing with the Consumer Financial Protection Bureau (CFPB). Refer to the FFIEC and the CFPB websites for resources to help you file.

Q: We keep the loan application register (LAR) to aggregate data for HMDA reporting? Is there anything we need to know about identifying our loan transactions on the LAR under the new HMDA rules?

A: If your organization originates loans that will be required to be reported on a HMDA Loan Application Register (LAR), you will need to obtain a Legal Entity Identifier, or LEI. This string of 20 characters is used in part to create the 45-character Unique Loan Identifier (ULI) that must be assigned to each loan reported on the LAR. You may obtain your LEI from the Global Market Entity Identifier Utility website at www.GMEIUtility.org.[2]

Have more HMDA recordkeeping and reporting questions? Ask the Compliance Experts, or, use these additional resources:

• Federal Financial Institutions Examination Council HMDA Page https://www.ffiec.gov/HMDA/
• A Guide to HMDA Reporting: Getting It Right! https://www.ffiec.gov/hmda/guide.htm
• CFPB Implementation & Guidance https://www.consumerfinance.gov/policy-compliance/guidance/implementation-guidance/hmda-implementation/

Around the Industry:

Effective Now:

The time to comply with new HMDA rules is now.

On the Horizon:

FDIC Summer 2017 Consumer News highlights 10 popular scams plaguing customers. How do they compare to your risk management?

MCM Q&A

How are you recapturing EPO or EPD fees? How might it affect your loan officer compensation practices? See this for more.

[1] Wu, B. (2017, June). Keep Calm and Compliance On. Mortgage Compliance Magazine, pp 40-43.

[2] Kilka, L. (2017, June). The Roadmap to HMDA Implementation. Mortgage Compliance Magazine, pp 36-39.

Source: http://www.mortgagecompliancemagazine.com/weekly-newsline/hmda-questions-get-right/