Banking Compliance January 2023


The first meeting in 2023 of the Bankers Compliance Task Force supported by Jones Walker was held on January 18. The Bankers’ Compliance Task Force is a group of bankers from banks of all sizes who meet quarterly to discuss and receive training on current compliance issues. as legal and regulatory trends.

Highlights of the meeting included an update from a Mississippi Department of Consumer Banking and Consumer Finance (MSDBCF) Bank Secrecy Act (BSA) examiner, another guest speaker who addressed her perspective on the impact of the proposed Community Development Financial Institutions Fund (CDFI). changes to the CDFI certification application, a general training on foreclosures, and a fair lending update.

BSA Perspectives

The MSDBCF BSA Examiner provided an update on the availability of medical marijuana in Mississippi and said that, as of early January, there were 58 growers in Mississippi, three licensed laboratories, six licensed transportation providers, 79 approved dispensaries, and 40 license applications. dispensary in Mississippi. line for processing. Additionally, in the same time period, there were 903 patients on license and 600 more online for processing. Dispensaries are not yet operating in Mississippi as they are currently out of product so there is a holding pattern but this is a good time for your bank along with your board of directors to decide to what extent you will or will not . it will not ban marijuana-related businesses before operations are in full swing, likely in the very near future.

The burden of banking a marijuana-related business is high. Ongoing monitoring of each marijuana-related business will be required in addition to the bank’s current monitoring obligations under the BSA. Any bank that operates a marijuana-related business must have policies, procedures, and processes to identify, monitor, and assess the risk of each customer. All bank employees who may be in a position to identify a marijuana-related business must be trained on how to do so and who to report this information so that all such customers are identified. In addition, limited marijuana Suspicious Activity Reports (SARs) must be filed on an ongoing basis and marijuana priority and termination SARs must be filed if suspicious activity is suspected that may violate state law or federal authority.

The most common BSA examination issues observed by the MSDBCF BSA examiner are (1) the banks’ failure to track and monitor the findings of all prior examinations and independent reviews and (2) monitoring of suspicious activity of monetary instruments . All recommendations and violations noted in an exam review report or independent review must receive prompt attention, follow-up, and correction, including employee training in an effort to prevent repeat violations at the next exam.

It is also important to include monetary instruments in circulation in the monitoring of suspicious activities of banks. Monetary instruments in circulation for more than six months must be tracked and monitored. It is a good idea to contact the customer. Often an item remains backordered because the customer simply forgot about the check. On the other hand, there are cases where monetary instruments can be used to hide funds for tax evasion purposes, pursuant to a divorce, or for another potentially suspicious or illegal purpose. For that reason, it’s important to monitor these items for suspicious activity. The examiner noted that while there are legitimate reasons for the buyer and beneficiary name on an instrument to be the same, this is a red flag, and the bank should look at the instrument more closely to try to determine the purpose of the purchase. and document it in your monetary instrument register.

CDFI Highlights

Significant changes have been proposed to the CDFI certification application. Final rules are expected in April, after the current March recertification deadline, and could look very different from the proposed version. The guest speaker addressed only the proposed potential impacts and focused the presentation on four of the seven criteria for certification: core mission, target market, development services, and accountability. It was noted that the criteria would not change; rather, it would change how a bank would qualify for meeting each of the criteria. Changes to the requirements for an applicant to demonstrate a “primary mission of promoting community development” include providing evidence that the bank has a community development strategy and engages in responsible financial practices. The speaker also noted that significant changes to the target market criteria have been proposed and that the maps used have recently changed. Some of these changes include the removal of the continuity requirement and changes in geographic boundaries from a countywide eligibility standard down to a census tract level. There are many other changes to focus on if the rule is finalized as proposed, so if your bank is a CDFI, please pay close attention to any updates in the coming months.

Information about liens

An overview of garnishments was provided as part of the general garnishment training, including an overview of identifying protected federal benefit payments and an update on handling out-of-state garnishments by multi-state banks to The Consumer Financial Protection Bureau (CFPB) May 2020 Consent Order (the Order) v. Bank of America (BOA). In the Order, the CFPB blamed BOA for responding in the same way to all garnishments issued by a court in a state where the bank had a branch, even though the bank defined “account location” as the state in which the account was opened. The CFPB found problems with the bank’s consistent treatment of each lien, alleging that some customers may have missed out on beneficial exemptions from another state. In light of the Order, any bank with a multistate presence should consider including a specific definition of “account location” in its deposit agreement, submit any liens received from another state for legal review before responding, and don’t just ignore these liens without response, even if the account is in another state. Now is the time for banks to review the policies, procedures and processes related to the embargo. Banks must designate a designated recipient for any seizure order delivered to the bank so that a particular person or area can consistently respond and acknowledge wrongdoing. The bank should also consider creating and maintaining a record of garnishment that includes the date and time the order was received, as well as the court (and state) from which the order was issued.

Fair Lending Highlights

Fair lending and redlining were ongoing hot topics throughout 2022. The focus doesn’t seem to have shifted as we begin the new year. In fact, the largest redlining settlement to date was reached between the Department of Justice (DOJ) and City National Bank in Los Angeles County in early January 2023. The DOJ alleged that City National avoided making mortgage loans to mostly African American and mostly Hispanic people. neighborhoods in 2017-2020. This agreement was similar to other recent agreements with red lines. In its complaint, the Justice Department found issues with the fact that City National had only three of its 57 Los Angeles County locations in majority Black or Hispanic neighborhoods despite 55% of the county’s areas being majority black or hispanic Hispanic majority. The DOJ also asserted that City National failed to advertise in those areas and ignored multiple internal fair lending reports that noted a lack of lending to majority Black and Hispanic neighborhoods compared to its peers.

The bank was ordered to invest $29.5 million in a loan subsidy fund for the majority Black and Hispanic neighborhoods in question, at least $500,000 each in neighborhood advertising and consumer education, and $750,000 in community partnerships related to raising the access to residential housing. mortgage credit. City National must also conduct a community credit needs assessment, open a new branch in a majority-black or majority-Hispanic neighborhood, and hire a full-time community loan manager.

Start the new year by reviewing the delineation of your bank’s assessment area; branching strategies; loan originations, applications received and denials by census tract; and marketing and community outreach activities.


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